EXCHANGE RATE FLUCTUATION AND IMPACT ON IMPORTED GOODS IN NIGERIA
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- 1-5 Chapters
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- NGN 3000
BACKGROUND OF THE STUDY
Since the conclusion of the civil war, the Nigerian economy has been very volatile. Following the conversion of the Nigerian Pound to Naira in 1973, fixed exchange rates were established for both the Pound sterling and the US Dollar at £0.5833 and US 1.5200 to N1.00, respectively. This has wreaked havoc on the Nigerian economy, as the exchange rate of the Naira to both the US dollar and the British pound sterling has been recorded, and the economy has also experienced the greatest level of inflation (Obaseki 2017). As a result, Nigeria as a country has lost its financial credibility in the outside world, while at home, because the exchange rate is net in our favour, the country has seen the biggest amount of brain drain.
Bizzarely, Ojo (2020),Exchange rate swings have impacted most of our industries that import all or part of their raw materials, resulting in output below capacity utilisation and unemployment. Again, due to the exchange rate, most locally produced items are pricey, pricing themselves out of the market. The rate at which Naira is exchanged for Dollar impacts the market price of products. As a result, fluctuations in the exchange rate affect the pricing of imported items, either upwards or downwards. At the same time, the fact that the majority of raw materials and machinery are imported impacts the price of locally produced items, and the prices at which the currency of exchange is secured affect the price favourably or adversely.
Apparently, controlling exchange rate fluctuations in the money market has been a source of contention for both the government and individuals. This has resulted in the country's continuous quest for a viable economic system, which has led to the adoption of FEM. a. Determination of a reasonable exchange rate for the Naira
b. Using the topic mechanism to direct resources to the economy's most deserving sectors.
According to Samuel (2019), the currency rate has a beneficial impact on imports. When the exchange rate is high, imports of products fall, except for needs, which have a minor response to the exchange rate. The exchange rate has a favourable impact on the pricing of imported items. In fact, however, imports respond faster to changes in domestic income than to changes in the actual exchange rate. Again, if prolonged, a change in the real exchange rate will eventually have a considerable impact on both import and export levels. Imports, on the other hand, have been increasing since 1985. When the Naira depreciates, the exchange rate moves downward, making imports highly expensive; conversely, when the Naira rises, imports benefit.
Due to increases in the pricing of inputs utilised in the manufacturing process, adverse fluctuation rates result in losses or decreased profit. Nigeria is heavily reliant on imported inputs and raw materials to sustain its diverse industrial enterprises. As a result, with each Naira depreciation, the price of imported inputs soars in terms of Naira, which is transmitted to the entire economy in the form of higher prices of goods and services and intolerable inflation, because a fall in the international value of the Naira makes Nigerian goods cheaper in foreign currencies and foreign goods more expensive in Naira. This shift in the Naira exchange rate tends to improve the quality of products exported from Nigeria while decreasing the quality of items imported into Nigeria. During the assessment period, 2000-2012, Nigeria had the highest inflation rate among its trading partners. Whether Nigerian goods become more or less competitive in the global market is determined by whether the increase in Nigerian competitiveness is justified by genuine economic events such as technical improvement, changes in external conditions, taxation changes, and so on. Exchange rate fluctuations provide producers a particular edge in terms of cost competitiveness (Ojo 2020).
The main disadvantage of the Naira's depreciation is that it makes planning extremely difficult. Because the exchange rate continues to fluctuate, making company estimates erroneous, marketing specialists and managers are confronted with the challenge of developing appropriate strategies, marketing plans, and operations.
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