The Impact of Exchange Rate Fluctuation on Macroeconomic Performance in Nigeria
THE IMPACT OF EXCHANGE RATE FLUCTUATION ON MACROECONOMIC PERFORMANCE IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
This study is designed to examine the causes of exchange rate fluctuations and their impact on the Nigerian economy since there is scarcely any country that lives in absolute autarky in this globalised world. The economies of all the countries of the world are linked directly or indirectly through asset or/and goods markets. This linkage is made possible through trade and facilitated by foreign exchange. The price of foreign currencies in terms of a local currency (i.e. foreign exchange) is therefore important to the understanding of the growth trajectory of all countries of the world.
According to Esther Adegbite (2007) Exchange rate is said to be the “relative price of two “national monies” or, the relative price of two national outputs” or the relative price of tradeables to non tradeables” that results in simultaneous equilibrium in the internal and external sectors of an economy.
Moreover, some notable influences on the exchange rate of any country include variables like demand and supply of foreign exchange, monetary and fiscal policies, level of foreign reserves among others. These variables, if not properly managed often lead to different economic problems ranging from economic depression, rampaging inflation, high levels of unemployment, currency depreciation and balance of payment deficits.
Hence, governments are constantly faced with the pressure of dealing with these variables. One of the various means this is achieved is through the use of government policies, specifically exchange rate policy which is the most common policy for achieving the equilibrium balance of payment. A great level of attention is given to balance of payments, because Nigeria, like many other low income open economies of the world, needs to pay more attention to her economic growth and development. Every developing nation will do
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
This study is designed to examine the causes of exchange rate fluctuations and their impact on the Nigerian economy since there is scarcely any country that lives in absolute autarky in this globalised world. The economies of all the countries of the world are linked directly or indirectly through asset or/and goods markets. This linkage is made possible through trade and facilitated by foreign exchange. The price of foreign currencies in terms of a local currency (i.e. foreign exchange) is therefore important to the understanding of the growth trajectory of all countries of the world.
According to Esther Adegbite (2007) Exchange rate is said to be the “relative price of two “national monies” or, the relative price of two national outputs” or the relative price of tradeables to non tradeables” that results in simultaneous equilibrium in the internal and external sectors of an economy.
Moreover, some notable influences on the exchange rate of any country include variables like demand and supply of foreign exchange, monetary and fiscal policies, level of foreign reserves among others. These variables, if not properly managed often lead to different economic problems ranging from economic depression, rampaging inflation, high levels of unemployment, currency depreciation and balance of payment deficits.
Hence, governments are constantly faced with the pressure of dealing with these variables. One of the various means this is achieved is through the use of government policies, specifically exchange rate policy which is the most common policy for achieving the equilibrium balance of payment. A great level of attention is given to balance of payments, because Nigeria, like many other low income open economies of the world, needs to pay more attention to her economic growth and development. Every developing nation will do
References: Aghion,Philippe;Bacchetta,Philippe; Ranciere, Romain, and Rogoff, Kenneth (2008), “Exchange Rate Volatility and Productivity Growth: The Role of Financial Development”. NBER Working Paper. Aliyu, S. U. R (2009), Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An Empirical Investigation, Research Journal of Internatıonal Studıes - Youtang, Zhang and Shehu, Abba Abubakar (2012), “Exchange Rate Volatility, Trade flows and Economic Growth in a Small Open Economy”. International Review of Business Research Papers Vol. 8. No.2. March 2012. Pp. 118 – 13.