THE EFFECT OF EXCHANGE RATE ON BALANCE OF PAYMENT IN NIGERIA
This project examines the effect of exchange rate on balance of payment in Nigeria. The broad objective of the study is to ascertain the extent to which exchange rate determines the balance of payment and also to determine the relationship between national income and balance of payment. The problem of foreign exchange inadequacy, dependence on the oil sector for exchange earning, continuous depreciation of the naira exchange rate coupled with the inability to determine precisely the level of exchange rate of the naira that would ensure the internal and external balance simultaneously. The secondary source of data collection was used as data was collected from CBN publications and the Federal Office of Statistics. The ordinary least square regression was used to analyze the data and the findings revealed that the national income has a positive correlation with balance of payment and that the relative price of agricultural products has a positive correlation with balance of payment. It was concluded that the disparity in the size of oil export and non oil export in terms of relative comparism, the unfavourable domestic and international economic development has constrained the achievement of balance and sustained economic growth that could foster balance of payment viability. It was recommended amongst others that there should be increase in non oil exports commodities.
1.1 Background to the Study
Right from time immemorial, a country’s exchange rate and balance of payment is usually regarded as the sum of indices by which a nation’s strength can be measured especially its economic strength. Balance of payments is an accounting record to all monetary transactions between a country and the rest of the world.
Devaluation is tall in a fixed exchange rate, which reduces the value of a currency in terms of other currencies. So what we are trying to do in this study is to determine how the reduction value of a currency with respect to the currency of another country affect the record of all monetary transactions between a country and another, whether visible or invisible in a period of time. This is very important because no nation can exist on its own no matter how independent or self-sufficient it can be, it is important to have a relationship with other nations which can be characterized by goods and services going one way and foreign exchange going the other way. When accessing the nation involved, a record of gains and losses may have been kept. As such a nation’s foreign exchange and balance of payments can help slowdown, accelerate or decelerate walking growth progress and development. This will also have a positive or negative effect on the citizens since it deals mainly with economic relations.