ABSTRACT
The research work
critically examined the extent to which naira exchange rate depreciation had
affected domestic inflationary rate in Nigeria between 1985 – 2000.
Therefore, in this study, the researcher examined the trend of inflation and
exchange and the relationship between the two variables. A model
was specified to show the relationship between both variables. Also
interest rate was included in the model as one of the variables that affect
inflation.
The model was then
estimated using multiple regression method and variable statistical tests where
carried out on the regression equation.
The result was analyzed
accordingly. Moreover, the result of the statistical test shows that exchange
rate depreciation of Naira is significant in explaining variation in the rate
of inflation.
Finally, the data for
the project work was collected from most recent years in order to make finding,
adequate in explaining the cause of inflation in recent times.
TABLE OF CONTENTS
CHAPTER ONE
Introduction
1.1 Background
to the
study
1.2 Statement
of
problem
1.3 Significance
of
study
1.4 Objective
of the
study
1.5 Research
hypothesis
1.6 Scope
of
study
1.7 Definition
of
terms
Reference
CHAPTER
TWO
Literature
review
2.1 The
concept of exchange
rate
2.2 Exchange
rate management in Nigeria
2.3 Inflation
– a
concept
2.4 Theories
of
inflation
2.5 Inflation
in Nigeria
2.6 Exchange
rate depreciation and inflation in
Nigeria
2.7 Empirical
evidence
Reference
CHAPTER THREE
Research
methodology
3.1 Method
of data collection and analysis
3.2 Theoretical
framework and model
specification
Reference
CHAPTER
FOUR
Analysis of
result
4.1 Presentation
of result
4.2 Analysis
of
result
CHAPTER FIVE
Summary, conclusion and
recommendation
5.1 Summary
5.2 Conclusion
5.3 Recommendation
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND
TO THE STUDY
The naira exchange rate
depreciation coupled with persist increase in the inflationary rate has been a
major bane on economy of Nigeria. To a layman inflation is a phenomena to
embrace as his income increases daily without knowing the harmful side of such
an increase. Whether there is anything like depreciation or an
improvement in the exchange or whether is income is nominal or real the layman
do not know.
But this complementary
problems so to say of naira exchange rate depreciation and inflation has been a
thought of obesity in the hearts of Nigerians past and present governments and
many patriotic Nigerians.
The pegging of,
inflation in Nigeria can be said to be a direct result of the policies of the
country’s governments to stimulate a fast rate of economic growth and
development, since 1951 when the ministerial government was introduced between
1984 and 1986, the naira was quoted against dollar and pounds as the only
intervening currencies which was in line with the International Monetary Fund (I.M.F)
demand. I.M.F had earlier complained that naira exchange rate was rising
above the stipulated 2% limit. The naira was then devalued at 1.000 4 US
dollar. The inflation rate in Nigeria was not serious problem before her
independence. But immediately after the civil war i.e. from 1970’s, the
inflation rate in Nigeria took another dimension. The value of naira as
against dollar and pounds sterling started to deteriorate, in 1970, it was a
naira to 1.400 dollar and 0.584 pounds sterling. In 1971, it was 1.44
dollar and 0.582 pounds sterling to a naira. In 1973, it was 1.519 dollar
and 0.614 pounds sterling to a naira. In 1974 it was 1.589 and 0.675
pounds sterling to naira which increased to 1.623 dollars and 0.734 pounds
sterling in 1975 as a result of Udoji salary award of 1974 increased wage
extensively. Higher wages increased the purchasing power of consumers
thus, leading to increase in their prices.
The introduction of
Structural Adjustment Programme (SAP), and second-Tier Foreign Exchange (SFEM)
in 1986 on one of government’s major policy packages, was aimed at making the
over, valued naira exchange rate more realistic and responsive to market
forces. Regrettably, C. Anyanwu (1989) observed, the SAP/SEFEM was a
disaster that was fast destroying the foundation of Nigeria economy.
There was consequent persistence of exchange rate depreciation of the naira
(from 1.5691 naira to 1.0 dollar at the end of September 1986, 7.8950 naira to
1.0 dollar by mid February 1990). Also by August 1998, the dollar was
sold for 21.9960 naira at the Foreign Exchange Market (FEM) while at parallel
market it was sold for 45 naira. The value of naira continued to
depreciate to the extent that the exchange rate was less than one dollar to a
naira before 1990. It was 0.119 US dollar to a naira in 1990. This
depreciated to 115.7 to a dollar by the 12 April, 2001 (CBN) 1994. By
2003, it has risen N130 to the US dollar.
1.2 STATEMENT
OF PROBLEM
The depreciation of
naira persistently, has various inflationary effects on the economy of
Nigeria. The effects of this macro-economic problem can be highlighted in
different stages. In the first place, when a currency is depreciated, it
is designed to reduced or discourage the excessive dependence on a particular
foreign or some foreign commodities.
This will make domestic
prices of such imports may be intermediate goods and as a result tends to push
the cost of production of final goods up.
In another way,
deteriorating exchange rate of naira could bring about inflation of increase in
wage rate or demand, when the naira is devalued, the price of important raw
materials increases domestic firms may be willing to increase production
reduction on their competition as a result of like in prices of raw materials.
Consequently, the output
of the firms will attract high prices, therefore for consumers to meet their
provisions level of consumption or maintain their real income, calls for wages
increase which according to Sotersten (1994) will worsen the whole situation.
Nigerians as one of the
developing nations that heavily depend on imported inputs, implements and
machinery, the cost of these are usually very high due to poor exchange rate of
naira.
This will discourage
potential investors, how investment will lead to reduced national product,
which is an indicator of stagnancy or retrogression of the economy.
For this reason,
Obasanjo (1999) noted that any thing could happen of regulatory authorities did
not take steps to tidy up the situation, so the researcher wants to find out
the problems and suggest ways of remedying the situation.
1.3 SIGNIFICANT
OF THE STUDY
For the purpose of this study, the researcher
took a step further to determine the possible significances.
(i)
To give other researchers who which to write on this topic the process to
follow
(ii)
To check the inflationary of deflationary gap
(iii)
To determine the cumulative impact of broad money growth and the sizeable
devaluation of the naira
(iv)
To determine the fate of naira with other internal currencies.
(v)
To determine government policies.
1.4 OBJECTIVE
OF THE STUDY
The objectives of this study include the
following
(i)
To identify the causes of inflation and exchange rate depreciation.
(ii)
Examine the extent to which naira exchange rate depreciation heed affected
domestic inflationary rate in Nation.
(iii)
Assess the effectiveness of government earlier introduced policies.
(iv)
Give suggestion and recommendation on appropriate policies for the future.
1.5 RESEARCH
HYPOTHESIS
Since the research data
was mainly from secondary sources, the hypothesis used will be in two forms to
determine result.
The null hypothesis and
the alternative hypothesis. The null hypothesis (Ho) will be tested
against the alternative hypothesis (Hi)
(a)
Ho: There is no positive or significant
relationship
between exchange rate depreciation and domestic
inflation in Nigeria.
(b)
Hi: There is significant or positive
relationship between
exchange rate depreciation and domestic inflation
in Nigeria.
1.6 DEFINITION
OF TERMS
Exchange rate:
This is the price at which one country exchanges its currency for other
currencies.
Depreciation: This is when exchange rate changes so
that a unit of its currency can buy fewer units of foreign currency.
Devaluation:
This is an intentional act put forward by the government of a country with the
aim of sustaining equilibrium.
Inflation:
This is substantial, sustained increase in general level of prices.
Department | Business Administration and Management |
Project ID Code | BAM0186 |
Chapters | 5 Chapters |
No of Pages | 64 pages |
Reference | YES |
Format | Microsoft Word |
Price | ₦4000, $15 |
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Contact Us On | +2347043069458 |