The research work was set out to appraise the impact of inflationary trend on exchange rate, that is, price of the domestic currency in terms of another currency. The objective of this study is to examine the effect of exchange rate on inflation on the Nigerian economy and also determine the relationship between exchange rate policy and their effect on the Nigerian economy.

The study adopted the use of econometric statistical tools in estimating the relationship between inflation rate and exchange rate in Nigerian economy. Regression was employed using multiple regression analysis in obtaining the numerical estimates of the coefficients in the model formulated. Data were collected from secondary source spanning from 1990 to 2009. The source of data is Central Bank of Nigeria (CBN). The result that there is a negative relationship between inflation rate and exchange rate in Nigeria with F = 6.536. Also, it was revealed that there is a positive relationship between gross domestic product, inflation rate and exchange rate in Nigeria with F = 10.327. Finally, the research found that there is a positive relationship between gross domestic product, inflation rate, exchange rate and money supply in Nigeria with F = 6.544. Based on the empirical findings, the study suggest that The monetary authorities need to continuous monitor the exchange rate to ensure that it is within a competitive level that would ensure that simultaneous attainment of internal and external balance. Inflation rate should be manage and kept within levels at which the external sector remains competitive in the local economy.


Title Page                                                                                 i

Certification                                                                            ii

Dedication                                                                               iii

Acknowledgement                                                                    iv

Abstract                                                                                   v

Table of contents                                                                     vi



1.0        Background of Study                                                     1 – 4

1.1        Problem Analysis                                                           4

1.2        Objectives of The Study                                                 5

1.3        Research Questions                                                       5

1.4        Statement of Hypothesis                                                6

1.5        Significance of Study                                                     6

1.6        Scope of Study                                                               7

1.7        Definition of Terms / Concepts                                      7 – 8

References                                                                      9



2.0        Introduction                                                                   10

2.1        Exchange Rate Concept                                                 10 – 14

2.2        Foreign Exchange Policy And Management                    14 – 17 

2.3        Determinants of Exchange Rates                                   17

2.3.1 Demand  and Supply of Foreign Exchange                     17– 18    

2.3.2 Central Bank Intervention                                              18

2.3.3 Changes in Imports and Exports                                    18 – 19  

2.3.4 Changes in Relatives Prices                                            19

2.3.5 Interest Rate                                                                   19 

2.4        Types of Exchange Rate Regimes                                   20 – 21

2.4.1 Advantages of Floating Exchange Rate                           22

2.5        Theories of Exchange Rate                                             23 – 26

2.6        Review of Nigeria’s Exchange Rate                                 27 – 31

2.7        Historical Background of The Foreign Exchange Market 32 – 33

2.7.1   Current Structure of the Nigeria’ Foreign Exchange Market    34

2.7.2   Trends in the Foreign Exchange Market                        34 – 35

2.7.3   Analysis of the Trend in Foreign exchange Inflows and Disbursement                                                                                              35  - 40

2.8        Implication of Exchange Rate Management of

an Economy                                                                   40 – 41

2.9        Major Challenges of Foreign Exchange Management

 in Nigeria                                                                      41 – 43   

2.10     The way Forward                                                           43 – 44

2.11     Exchange Rate Policy in Nigeria                                     44 – 49

2.12     The Role of Central Bank of Nigeria in Exchange Rate Management                                                                                                 49 – 51 

2.12.1 CBN Initiatives in Managing the Exchange Rate           51 – 52

2.13     Inflation                                                                         52 – 53

2.13.1 The Meaning of Inflation                                               53 – 54 

2.14     Theories of Inflation                                                       54 – 56

2.14.1 Keynesian  Theories of Inflation                                    56 – 58   

2.15     Causes of Inflation                                                         59  - 61

2.16     Types of Inflation                                                           61 – 62

2.17     Effects of Inflation                                                          63 – 64

2.17.2 Factors Affecting Supply                                              64 - 65

2.18     Control of Inflation                                                         65 – 67

2.19     Review of Exchange Rate and Inflation                          67 – 69

References                                                                      70



3.0        Introduction                                                                   71

3.1        Research Design                                                             71 – 72

3.2        Re-statement of hypothesis                                            72

3.3        Data Analysis Method                                                    73

3.4        Model Specification                                                        73 – 76

3.5        Sources of Data                                                              76

3.6        Limitation of Data                                                          76

References                                                                      77



4.0        Introduction                                                                   78

4.1        The Empirical Result     s                                              78 – 80  



5.0        Introduction                                                                   88 – 89

5.1        Summary of Findings                                                     89 – 90

5.2        Recommendations                                                          90- 91

5.3        Conclusion                                                                     92

Bibliography                                                                  93 – 96




1.O  BACKGROUND OF STUDY                                   

The tradition definition of money as anything that is generally accepted as a medium of exchange, which can also serve as a store of value has stressed money as an assets held in interim between receiving payment and making payment. Comprehensively, money is the set of liquid financial assets which has a close correlation with the development of the economy and is potentially subjected to the control of monetary authorities. From this definition above one can conclude that money is a central to the efficient working of any modern economy that relies on specialization and exchange.

Furthermore there is a general saying that no man is an Island, so I believe no country is also an Island, that there is scarcely any country that lives in absolute autarky in this globalised world. The economies of all the countries of the world are linked directly or indirectly through asset or/and goods markets. This linkage is made possible through trade and foreign exchange. The price of foreign currencies in terms of a local currency (i.e. foreign exchange) is therefore important to the understanding of the growth trajectory of all countries of the world.

The consequences of substantial misalignments of exchange rates can lead to output contraction and extensive economic hardship. Moreover, there is reasonably strong evidence that the alignment of exchange rates has a critical influence on the rate of growth of per capita output in low income countries (Isard, 2007).

Nigeria, like many other low income open economies of the world, has adopted the two main exchange rate regimes for the purpose of gaining internal and external balance. The augments and conditions for and against each of the regime is clear given that they are all aimed at maintaining stability in exchange rates. Direct administrative control exchange rate policy was used to manage Nigeria’s foreign exchange from independence in 1960. The country changed to a market regulated regime in 1986 for obvious reasons.

What is however yet to be clear is the relative advantage of the various organized market arrangement for selling and buying the foreign exchange under the dirty float regime that the country now operates. The country has and is still experimenting with various market arrangements. First in 1986, it chose to operate the Second Tier Foreign Exchange Market (SFEM) on an auction basis. More than two decades now after the introduction of the flexible exchange regime, Nigeria has operated several variants of the auction system (Auction System, Dutch Auction System, Wholesale Dutch Auction System, and Retail Dutch Auction System) towards determining the exchange rate of the naira to US dollar. project topics   final year project topics and research materials 

Trade as well know is widely accepted as a major engine of economic growth. This has been the experience of Nigeria since the 1960s even though the composition of trade has changed over the years. For instance, in the 1960s, agricultural exports (including cocoa, cotton, palm kernel and oil, groundnuts and rubber) were the country’s main sources of foreign exchange and revenue to the government. But with the discovery and export of crude oil in the late 1960s and early 1970s, the important role of agricultural exports began to wane, replaced by crude oil exports.

Therefore exchange rate is a relative price that measure s the worth of domestic currency in terms of another currency. It relates the purchasing power of a domestic currency, in terms of the goods and services it can purchase vis-à-vis a foreign or trading partner’s currency, over a given period of time. Since the exchange rate expressed the value of one currency in terms of another, when one currency appreciates, the other will depreciate.

However, when exchange of goods are made in the international market in a higher proportion of currency, example dollars to naira, that is, the value of dollars appreciate while naira depreciates, the effect of this on nation is that importation price becomes high reflecting on final price level of such goods at the local market.

Subsequently, due to the risk in importation cost, few goods are imported which reduces the supply of such goods.  The net effect of this is that, if effective demand for such goods rises, much more money will be chasing few available goods in local market, better still we say inflation arises. Therefore inflation as defined the neo-classicalist is always and everywhere a monetary phenomenon and can be produce only by a more rapid increase in the quality of money than output. The most important features of the definition of inflation are; there must be a persistent increase in the general price level, it must be noticeable in the whole economy, and it must persist over a period of time.

Conclusively, the study of exchange rate is useful for macro economic management since it reflects the performance of both the domestic and external sectors of the economy.

Importantly, if exchange rate is managed, it will sprout the attainment of a stable and realistic exchange rate that will lead to a locative efficiency in the foreign exchange market, increase domestic productivity, guarantee the attainment of internal balance, encouragement of export activities leading to improve foreign exchange earnings, attraction of foreign direct investment and reduce the inflationary spiral.


In an economy that is dependent on international trade, exchange rate will be the important price, in that it will determine virtually all other prices. The problem of exchange rate in Nigeria includes; relative shifts in money supply, real output and inflation rates between trade partners.

This research work is aim at identifying the reforms that need to be considered in unifying and improving the efficiency of the foreign exchange market and allowing for more flexible determination of the exchange rate and also policy measure should be directed at moving these aggregates towards the desired levels.

A realistic exchange rate should be stable, prevent short term volatility in capital flows and overtime, more towards its equilibrium level and stabilize the balance of payments.


1. The specific objective of this study is to examine the effect of changes in exchange rate on inflation in Nigeria.

2. To determine the relationship between exchange rate policy and their effect on the Nigeria economy.

3. To proffer possible policies to exchange rate policy on how effective exchange rates could help achieve the major macro economic objectives.


The research study makes an attempt to answer the following questions;

What are the roles of Central Bank of Nigeria (CBN) in Nigeria foreign exchange market? What is the relationship between exchange rate and inflation in Nigeria? What are the effects of exchange rate policy on Nigerian economy? Is there any relationship between exchange rate and money supply in Nigeria? What are the effects of inflation rate on Nigerian economy? What are the effects of inflation on exchange rate?


The hypotheses that will be formulated and tested for this study includes;

 Ho: There is no positive relationship between inflation rate and exchange rate in Nigeria.

H1: There is a positive relationship between inflation rate and exchange rate in Nigeria.

 Ho: There is no positive relationship between gross domestic product, inflation rate and exchange rate in Nigeria.

H1: There is a positive relationship between gross domestic product, inflation rate and exchange rate in Nigeria.

 Ho: There is no positive relationship between gross domestic product, inflation rate, exchange rate and money supply in Nigeria.

H1: There is a positive relationship between gross domestic product, inflation rate, exchange rate and money supply in Nigeria.


The exchange rate serves as the fundamental channel to the economy. The study is important because it is directed towards ascertaining whether exchange rate have lived up to expectation, as a medium of improving the country economy by implementing a number of sensitive exchange rate policy which will affect the economy positively. Those that will benefit from this study are the monetary authority and the Nigerian economy as a whole.


For this research work, the researcher implores the use of data on exchange rate, inflation and gross domestic product and money supply within the year 1990 to 2008. This is aimed at enabling the researcher to be able to critically analyze the relationship between the variables in question (exchange rate, inflation, gross domestic product and money supply).


C.B.N – Central Bank of Nigeria is the country leading bank, generally responsible for overseeing the banking system, acting as clearing banker for commercial Banks and for implementing Monetary policy, also responsible for handing the government budgetary account’s and for managing the country’s external monetary affairs, in particular the exchange rate.

DAS- Dutch Auction System is a means of selling goods and services to the highest bidder among the member of potential customers.

EXCH- Exchange Rate is the price of one currency expressed in term of some other currency.

FEM- Foreign Exchange Market is a market engage in the buying and selling of foreign currencies, such a market is required because each currency involved in the international trade and foreign exchange.

GDP- Gross Domestic Product is the total monetary value of all final goods and services produced in an economy over a one year period.

IFN- Inflation rate is an increase in general level of prices in an economy that is sustained over a period of time.

MS- Money Supply i



RESEARCHWAP.COM is an online repository for free project topics and research materials, articles and custom writing of research works. We’re an online resource centre that provides a vast database for students to access numerous research project topics and materials. guides and assist Postgraduate, Undergraduate and Final Year Students with well researched and quality project topics, topic ideas, research guides and project materials. We’re reliable and trustworthy, and we really understand what is called “time factor”, that is why we’ve simplified the process so that students can get their research projects ready on time. Our platform provides more educational services, such as hiring a writer, research analysis, and software for computer science research and we also seriously adhere to a timely delivery.


Please feel free to carefully review some written and captured responses from our satisfied clients.

  • "Exceptionally outstanding. Highly recommend for all who wish to have effective and excellent project defence. Easily Accessable, Affordable, Effective and effective."

    Debby Henry George, Massachusetts Institute of Technology (MIT), Cambridge, USA.
  • "I saw this website on facebook page and I did not even bother since I was in a hurry to complete my project. But I am totally amazed that when I visited the website and saw the topic I was looking for and I decided to give a try and now I have received it within an hour after ordering the material. Am grateful guys!"

    Hilary Yusuf, United States International University Africa, Nairobi, Kenya.
  • " is a website I recommend to all student and researchers within and outside the country. The web owners are doing great job and I appreciate them for that. Once again, thank you very much "" and God bless you and your business! ."

    Debby Henry George, Massachusetts Institute of Technology (MIT), Cambridge, USA.
  • "I love what you guys are doing, your material guided me well through my research. Thank you for helping me achieve academic success."

    Sampson, University of Nigeria, Nsukka.
  • " is God-sent! I got good grades in my seminar and project with the help of your service, thank you soooooo much."

    Cynthia, Akwa Ibom State University .
  • "Great User Experience, Nice flows and Superb functionalities.The app is indeed a great tech innovation for greasing the wheels of final year, research and other pedagogical related project works. A trial would definitely convince you."

    Lamilare Valentine, Kwame Nkrumah University, Kumasi, Ghana.
  • "Sorry, it was in my spam folder all along, I should have looked it up properly first. Please keep up the good work, your team is quite commited. Am grateful...I will certainly refer my friends too."

    Elizabeth, Obafemi Awolowo University
  • "Am happy the defense went well, thanks to your articles. I may not be able to express how grateful I am for all your assistance, but on my honour, I owe you guys a good number of referrals. Thank you once again."

    Ali Olanrewaju, Lagos State University.
  • "My Dear Researchwap, initially I never believed one can actually do honest business transactions with Nigerians online until i stumbled into your website. You have broken a new legacy of record as far as am concerned. Keep up the good work!"

    Willie Ekereobong, University of Port Harcourt.
  • "WOW, SO IT'S TRUE??!! I can't believe I got this quality work for just 3k...I thought it was scam ooo. I wouldn't mind if it goes for over 5k, its worth it. Thank you!"

    Theressa, Igbinedion University.
  • "I did not see my project topic on your website so I decided to call your customer care number, the attention I got was epic! I got help from the beginning to the end of my project in just 3 days, they even taught me how to defend my project and I got a 'B' at the end. Thank you so much, infact, I owe my graduating well today to you guys...."

    Joseph, Abia state Polytechnic.
  • "My friend told me about ResearchWap website, I doubted her until I saw her receive her full project in less than 15 miniutes, I tried mine too and got it same, right now, am telling everyone in my school about, no one has to suffer any more writing their project. Thank you for making life easy for me and my fellow students... Keep up the good work"

    Christiana, Landmark University .
  • "I wish I knew you guys when I wrote my first degree project, it took so much time and effort then. Now, with just a click of a button, I got my complete project in less than 15 minutes. You guys are too amazing!."

    Musa, Federal University of Technology Minna
  • "I was scared at first when I saw your website but I decided to risk my last 3k and surprisingly I got my complete project in my email box instantly. This is so nice!!!."

    Ali Obafemi, Ibrahim Badamasi Babangida University, Niger State.
  • To contribute to our success story, send us a feedback or please kindly call 2348037664978.
    Then your comment and contact will be published here also with your consent.

    Thank you for choosing