THE IMPACT OF EXCHANGE RATE FLUCTUATION ON INTERNATIONAL TRADE IN NIGERIA
The need for this project arose in the fulfillment of HND program in Accountancy and also as a result of the need to find out “impact of exchange rate fluctuation on international trade in Nigeria” and how it has been a major concern for the policy makers. This project is particular the case in Nigeria where countries trade extensively pays in his home currency to purchase a certain quality of funds in another country, that is the price of foreign exchange. The report has attempt showing the likely impact of exchange rate fluctuation on international trade, which flows inside and outside the community. The analysis indicates the needs that distinguish both the shorts – term volatility and medium-term fluctuation. Also import and export trade. The work find out that the recent exchange rate fluctuation has some negative and positive impact on international trade in Nigeria. During the process of this project we touched the important aspects such as:
i. The policy tools can be effectively developed to keep rate within those ranges.
ii. How we achieve exchange rate stability.
iii. That there is ways of minimizing risk associated with exchange rate and international trade in Nigeria.
iv. Exchange rate has impact on international trade.
v. How exchange rate should be determine.
The information for this project was collected from the questionnaire distributed to the banks, central bank of Nigeria, also with the use of primary and secondary data, like journals, newspaper, Bureau de change and interviews, magazines and related text books. The data collected were analyzed and recommendation and suggestions were given.
The project “The impact of exchange rate fluctuation on international trade in Nigeria” has long been a major concern for policy makers. This is particularly the case in Nigeria where countries trade extensively pays in his home currency to purchase a certain quality of funds in another country that is it is the price of foreign exchange. This report will attempt to show the likely impact of exchange rate fluctuation on international trade which flows inside and outside the community the analysis will indicate the need to distinguish between short-term votality and medium –term fluctuation. Also import and export trade. I will find that the recent exchange rate fluctuation is likely to have some negative and positive impact on international trade in Nigeria. In this production, I set out to examine the impact of exchange rate fluctuation on international trade in Nigeria. The study will be carried out through the use of primary and secondary data from banks; central bank of Nigeria, journals, bureaux de change, business newspapers to enable to answer the following question: What policy tools can be effectively deployed to keep rate within those ranges.
i. What range of fluctuation is consistent with the underlying fundamentals and hence acceptable?
ii. Should the range be decided in advance?
iii. Should they be announced to keep secret or should they be simply applied in an adhoc manner.
The recommendation made on this project will benefit the following people:
i. Importers who make payments in foreign currencies
ii. Policy makers of the central bank of Nigeria who issue the guideline governing international trade practice.
iii. Bank especially the commercial bank and merchant banks.
iv. Student of financial studies who might take a cue from the work to further research into the field of exchange rate fluctuations and international trade.
v. The genera; public who has a right to contribute and informed to the activities of banking institutions etc.
TABLE OF CONTENT
1.1 Background Of Study
1.2 Statement Of Problem
1.3 Purpose Of Study
1.4 Significance Of Study
1.5 Research Question
1.6 Research Hypothesis
1.7 Scope And Limitations Of Study
1.8 Definition of Terms.
Review of Related Literature
2.2 The Exchange Rate
2.3 Exchange Rate Policies
2.4 Nigerian Exchange Rate System
2.5 Exchange Rate Management
2.6 The Role of Banks in International Trade
Research Design and Methodology
3.1 Sources of data
3.2 Primary data
3.3 Secondary data
3.4 Sample used
3.5 Method of Investigation
Data Presentation and Analysis
4.1 Analysis of data
4.2 Test of Hypothesis
Summary of Findings, Conclusion and Recommendation
1.0 BACKGROUND OF STUDY
The historical development of international trade can be traced to the period of World War 1 (1914 – 1918). Although world trade was heavy during World War I in the early 30s (1930’s) world trade around declined significantly as economic conditions around the world is depressed. The action of individual government accelerated the drop in level of world trade. World War II stimulate trade and in the immediate post war period the long run trend has towards a relaxation of barriers.
International financial developments are having an increase effect on people because all parts of the world are now closely linked together than ever, before communication throughout the world take place within a second.
Trade and other economic contact between nations have expanded greatly in modern time. The movement of commodities often over great distances, has made available many articles which could not be enjoyed and has raised standards of living. Thus, international trade are having both a greater amount and a greater variety of goods to consume now.
The growth of international transaction has gone hand in hand with technological improvement in production and with the development of transportation. Those advances have made possible the increase in the volume and variety of goods produced and traded. Before oil exploration started in 1958, Nigeria was a net exporter of some palm kernel, groundnut, rubber etc. Nigeria has about 72% of its total working population engaged in agricultural sector. As a matter of fact, export declined 75.3210 in 1960 to 3.6 percent in 1982 to 2,048 billion in 1982 (first bank business and economic promotion has been an important cornerstone of the structural adjustment programme (SAP) aimed at regretting the Nigeria Economy.
This foretold the coming of a new era of economic property for this nation in which export revenues will be as much from many other sources as from oil whose price fluctuate in the world market which became a nightmare for all those who plan the economy.
The need for international trade cannot be over emphasized. The economies of the world have become so complex that no nation can afford to in anarchy or isolation. There is every need for not equally endowed in nature, countries require interacting exchanging resources with one another economic co-operation among nation is indispensable.
1.2 STATEMENT OF THE PROBLEM
The foreign suggests that exchange rate risk at it affects the importer is one that is enough to hinder development in the country thereby defeating laudable objectives of government.
The “Remittance lag” problem has far reached economic implications for the business risk to worry about in the international trade transactions. The questions that this project addressed are:
i. Who bears the burden to delay interest on money transaction caused by “remittance lag”.
ii. How can we achieve exchange rate stability.
iii. And to know if there is any impact in exchange rate on international trade.
iv. Also to determine the possible method by which risk associated with exchange rate fluctuation can be minimized and to discover whether government importers are given preferential treatment as regards the remittance of funds.
v. What range of fluctuation is consistent with the underlying fundamentals and hence acceptable?
vi. What policy tools can be effectively deployed to keep rate within those ranges.
vii. Should the range be decided in advance?
viii. Should they be announced to keep secretly or should they be simply applied in an adhoc manner.
1.3 PURPOSE OF STUDY
The purpose of this research work is as follows:
1. To seek and determine as far as possible method by which this risk associated with exchange rate fluctuation can be minimized.
2. To determine who should equitably bear the burden of the “delayed” interest, the commercial banks, the central ban or the importer.
3. To discover whether government importers are given preferential treatment as regard.
4. To ascertain whether it is widely believed that the FEM policy has not achieved a realistic exchange rate in Naira.
5. To ascertain whether the introduction of structural adjustment programme (SAP) by the government through foreign exchange market (FEM) is alleviating the problem created by the dual nature of international trade.
6. Base on the findings to make appropriate recommendations for the future, both for Nigeria and global community.
1.4 SIGNIFICANCE OF STUDY
The significance of this study therefore, lies on the recommendations made at the end of the study and its implementations.
In general, the research is of immense benefit to the following:
1. Importers who make payments in foreign currencies.
2. Policy makers of the central bank of Nigeria who issue the guidelines government international trade practice.
3. Bank – especially the commercial banks and merchant banks.
4. Students of banking and finance in fact, all in financial studies department (school) who might take a cue from the work done here for further research into the field of exchange rate fluctuations and international trade.
5. The general public who has a right to contribute and be informed to the activity (ies) of our banking institutions.
6. It is hoped that the findings and recommendations of this study will adequately benefit the various interest groups named above.
1.5 RESEARCH QUESTION
The following research question is an attempt to evaluate the performance of the exchange rate fluctuation on international trade, which will be designed to reflect problems of research project work and required to be answer.
i. What are the feature of exchange rate.
ii. How does it influence the cost and standard of living of individuals in Nigeria.
iii. To what extent does it has impact in international trade in Nigeria.
iv. Has the recent of affairs of exchange rate put any effect or impact on international trade.
1.6 RESEARCH HYPOTHESIS
The exchange rate fluctuation has impact on international trade in Nigeria. The project work on completion will prove this hypothesis and findout, why in order to recommend ways of solving problems.
1.7 DEFINITION OF TERM
Balance of payment:
This is a double entry statement of account, which revels the directions of various transactions in goods, services and capital flows between residents of one country and those of the rest of the world. Also it is a systematic record of the economic transactions during a given period between the residents of a country and the rest of the world. It covers earnings from flow of real resources changes in the country’s foreign assets and liabilities that arise from economic transactions.
Exchange market: -
It is a situation where a given amount of naira buys less quantity of goods than it used to. But in this case, it mainly brought about by government policies especially increase supply of naira by printing notes or borrowing from external bodies.
Foreign Exchange Squeeze: -
This is a situation where Nigeria has no foreign currency for example dollar or pound sterling to buy goods from abroad owing to dividend earning from export.
Bureau De Change: -
These are institutions or firm registered to buy and sell foreign exchange with the aim of eliminating the black market and finding, a realistic change for the naira.
Foreign Exchange: -
This is the same as international liquidity. An amount kept by a country in s world or convertible currency. Example dollar ($) with which such a country needs international payment obligations.
External Debts: -
These are debts owned to external bodies or institutions by Nigeria.
Letter of Credit: -
A document authorizing a bank to pay the bearer a specified sum of money. It provides a useful means of settlement for a foreign trade transaction, the purchaser establishing a credit in favour of his creditor at a bank.
Depreciation of Naira: -
This is a situation where a given amount of naira buys less quantity of goods than it used to. This is mainly brought about by higher demand for foreign goods and services supplied in the exchange market.
Bilateral and Multilateral: -
A state of freedom of trade in bilateral, it involves only two countries, while in multilateral it involves all countries of the world.
These are money kept in the bank by the customers for purchasing of foreign exchange.
Fixed Exchange Rate: -
It is one, which is not allowed fluctuation but is kept stable over a period. It does not depend on the relation of the supply and demand for it is in the Foreign Exchange Market. (FEM). The intervention in the FEM over the exchange is done through exchange equalization Account.
Floating Exchange Rate: -
This is an exchange rate, which is allowed to respond to the market forces of demand and supply of foreign exchange.
Appreciation of Currency: -
This is invalue of a currency in relation to other currencies.
International Reserve Assets: -
They are those assets of it items which are generally regarded or acceptable as medium of exchange in the settlement of balance of payment deficits.
Equilibrium Balance of Payment : -
This is achieved when the sum of the value of exports of goods, services, transfer, and long-term capital equals the sum of the value of import of goods, service, transfer, and long-term capital.
Surplus Balance of Payment: -
This results when the total export receipts of good, services, transfers and long-term capital exceeds import payments, while deficit balance of payment occurs when the import payment exceeds export payment.
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