EVALUATE THE RELATIONSHIP BETWEEN EXCHANGE TARE VOLATILITY AND ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

  • BACKGROUND OF THE STUDY

exchange rate  is a term  defined as the  worth  of the currency  in terms  of another, in finance, exchange  rate is the rate  at which  one country’s  currency exchange for another country’s currency. Thus it is  not  surprising  that exchange rate  remains one of the most  widely  disused topic  in the affairs  of any nation, most  importantly  the exchange  rate plays  a key  role  in the economics  activities  of developing  economics  such as  Nigeria, which  is an import-dependent  nation,  where  most raw materials and machines  are important  from the  developed nation (olisadebe,1995).

Exchange  rate  volatilizes  is seen as  the  unusual  movement  of the  exchange  rate and represents  uncertainty and risk  which impose  cost  on economics  agents ( Tsilua,2006). To this  extent, exchange  rate  volatility  impose  uncertainty  on  economic indicators  such as  investment, standard  of living  and economic  growth. Therefore  for any nation  to achieve  internal  balance in both  the short run and long run, the  monetary  authorities  are saddled  with the  responsibility  of implementing  sound exchange  rate  polices. This  is against  the  backdrop  that public sectors,  foreign  investors  and private  individuals  play a lot of attention  to exchange  rate volatility .

In Nigeria , exchange  rate management  has under some large  charges  over the lask four decades for  instance , in 1960 the nation  operated  a fixed  exchange  rate require  which was  fixed  at par  with the British  pounds and he American dollar (Aliyu,2011)

Later  on , in 1978, the  monetary  authorizes  pegged  the naira  to a basket of currencies  of her major trading  partners  but this led to a dire consequence  the sharp  fall in international  oil prices  and  subsequent  decline  in foreign exchange  receipts  in  the early 1980s  were such  that the  economy  could  not  meet its international  commitments in order   to mitigate  these  challenges, the stabilization  act of 1982 was implanted which led  to huge  depreciation  of the naira (Aliyu,2011)  the volatility  of Nigeria  exchange  rate took a dangerous  directions  after the  introduction  of structural  adjustment  programme (SAP)  in 1986.

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