ROLE OF FOREIGN EXCHANGE MARKET IN ACHIEVING A REALISTIC EXCHANGE RATE FOR NAIRA
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ROLE OF FOREIGN EXCHANGE MARKET IN ACHIEVING A REALISTIC EXCHANGE RATE FOR NAIRA
ABSTRACT OF THE FOREIGN EXCHANGE MARKET’S ROLE IN ACHIEVING A REALISTIC NAIRA EXCHANGE RATE
The distant root of the problem that prompted this investigation is possibly the country’s persistent balance of payment deficit, which has existed since independence.
The study seeks to investigate the role that the foreign exchange market has played in achieving a realistic exchange rate for naira, quite elaborately, there optima supported by existing lit
Some statistical tests are used in the study, such as the market equilibrium model, which is used to calculate the equilibrium exchange rate.
At the conclusion of the analysis, it was discovered that the foreign currency market had failed to meet any of the aforementioned conditions, implying that so far. It has not attained a reasonable naira exchange rate.
INTRODUCTION TO CHAPTER ONE OF THE ROLE OF THE FOREIGN EXCHANGE MARKET IN ACHIEVING A REALISTIC EXCHANGE RATE FOR NAIRA
1.1 BACKGROUND OF THE STUDY
Foreign exchange is a significant economic variable since it affects the performance of other macroeconomic variables in every economy. Furthermore,
its real value can be used to gauge the strength and overall performance of any economy. For these purposes, the viability of a nation’s economy is measured by its capacity to meet specific macroeconomic objectives. These are some examples:
(a) A high rate of employment
(a) The exchange rate’s stability
(c) Satisfactory payment balances and the preservation of the domestic currency’s external worth.
(d) A moderate rate of economic growth and growing living standards.
(e) Prevention of inflation.
(f) The distribution of income
Soon after achieving independence, Nigeria, like most sovereign nations, oriented its economy in a way that exchange earnings could not fix. Nigeria depended on oil during this period when agriculture was regulated to the background; however, the oil boom did not last long.
Furthermore, stringent measures in foreign exchange to banks on a global sectoral and monthly basis, import-licensing matching with the foreign exchange budget for import to enhance budget discipline alighted and blue print to economic buoyancy, made the structural adjustment programme (SAP) inevitable. SAP, as designed by the federal government, focuses on four areas:
1. Discovering the true worth of the naira by establishing a viable second-tier foreign exchange market, presently foreign exchange market.
2. Overcoming the observed public sector inefficiency through improved public expenditure programmed and the speedy rationalisation of peristyle relieving the debt burden through a comprehensive researching of countrys medium and long term debt and encouraging a net inflow of foreign capital.
With the international monetary authorities’ consent. As part of its structural adjustment effort, Nigeria abandoned the fixed exchange rate system in September 1986 and implemented the floating exchange rate system. With this goal in mind, the established market government sought to accomplish the following.
(i) Conducting a comprehensive analysis of Nigeria’s foreign exchange management policy.
(ii) A more efficient allocation of resources. By significantly reducing, if not completely eliminating, fraudulent and wasteful foreign exchange transition.
(iii) Identifying the source of foreign exchange volatility.
(iv) A realistic exchange rate for the naira as a result of market forces at work.
1.2 STATEMENT OF THE PROBLEM
Why is a foreign exchange market regarded as a tool for attaining a realistic exchange rate for the naira?
Why has it just come down on them, our monetary authorities, that realistic exchange rate adjustment and other such bright prospects for the reaping and constraining of our wounded economy have just come down on them?
Before delving into these critical issues, it is necessary to review the major thrust of Nigeria’s macroeconomic management. Since 1982, these limitations have been tightened, and the economy has been in a state of depression. The presence of an overvalued currency was palpable.
1.3 OBJECTIVE OF STUDY
To what extent has the foreign exchange market attained a realistic naira exchange rate? This is the question that this research project tries to answer.
1. To identify the role of the force market in producing a realistic exchange rate.
2. To establish whether the high exchange rate of the naira to the dollar and other foreign currencies is due to defects in the Nigerian foreign market.
3. To establish whether or not the force of demand and supply equilibrium will result in a realistic exchange rate. According to Micheal P. Todare, “choice payment deficits resulting primarily from current account transactions have been controlled by the exchange rate market.”
1.4 THE SIGNIFICANCE OF THE STUDY
The most important difficulty confronting Nigerian financial authorities in recent times has been the proper administration of the foreign currency market in determining a realistic rate of the naira.
The demand for foreign exchange resources has continued to outstrip supply since almost every unit of the system’s higher total liquidity is a prospective buyer of the substantially reduced foreign exchange earnings.
As a result, the role of the foreign exchange market in creating a realistic exchange rate for the naira is critical to our country, as is foreign exchange through the attainment of a realistic exchange rate, which alliterates the rate of economic growth.
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