Oil Exchange Rate In Nigeria

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CHAPTER ONE GENERAL INTRODUCTION 1.1 BACKGROUND OF STUDY Nigeria, the most populous black nation in western Africa is popularly known for her dominant source of revenue, crude oil with oil revenue as the main stay of the Nigerian economy, volatility in the price of oil are to a large extent of prime interest to economist. According to Adeniyi et al (2004), exchange rate appreciate in response to rising oil prices and depreciates in response to falling oil prices in oil producing exporting countries while the reverse is the case in oil importing countries. therefore, the impact (positive or negative) which oil price could have on exchange rate volatility of a country depends on what part…show more content…
Nigeria started exporting crude oil in 1958 but export in major quantity started in 1965, after the establishment of the bonny island on the coast of Atlantic and the pipeline to link the terminal. In 1970, as the Biafra war ends, there was a rise in world oil price and Nigeria benefited immensely from this rise. Nigeria became a member of the organization of petroleum exporting countries (OPEC) in 1971 and the Nigerian National Petroleum company (NNPC) which is a government owned and controlled company was founded in 1977. By the late sixties and early seventies, Nigeria had attained a production level of over 2 million barrels of crude oil a day. Although there was a drop in production of crude oil in the eighties due to economic down turn, by 2004 Nigeria bounced back producing 2.5 million barrels per day, but the Niger delta crisis and the global economy financial crises reduced Nigeria oil production and the world oil price. The discovery of oil brought in Nigeria, brought a ray of hope of a brighter future for Nigeria in terms of economic development as Nigeria became independent, but there were also grave consequences for the economy; as it…show more content…
Economic essentials affect the level of volatility and the extent to which exchange rate stability is maintained. Favorable economic circumstances and outcome which in turn would appreciate the currency and maintain stability is caused by strong fundamentals. (Mordi 2006) 2.2.5 EXCHANGE RATE POLICIES IN NIGERIA The motive behind initiating an exchange rate policy, an integral element of monetary policy is to preserve the value of the domestic currency, maintain favorable external reserve and ensure the realization of price stability in the domestic economy. (Sanni, 2006). Exchange rate policy in Nigeria has gone through many changes spanning between two major regimes. These are the fixed and flexible exchange rate systems. The fixed exchange rate system was adopted in 1960-1986, while the flexible exchange rate system remains in use from 1986 till date having undergone series of modifications. 2.2.5.1 THE FIXED AND FLEXIBLE EXCHANGE RATE

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