EFFECTS OF CURRENCY EXCHANGE RATE ON FOREIGN RESERVE POSITIONS AND IMPORTS IN NIGERIA
Yusuf, Kasim Mohammed and Salihu, Ahmadu Yahaya
Volume 4 Issue 1
Abstract
The study is intended to establish a relationship between Nigeria’s foreign reserve position and imports as independent variables and the exchange rate as a dependent variable spanning the period 1991-2022. An autoregressive distributive lag model was employed after preliminary investigations, which included the PP, ADF unit root test, and Johansen cointegration test. The model was found to be stable, and residuals are autocorrelated in the post-estimation test. The empirical findings show that in the short run, Nigeria’s foreign reserve position and imports were statistically significant to the exchange rate, and that a percentage increase in the exchange rate will lead to an approximately 38 percent fall in Nigeria's foreign reserve position. Similarly, a percentage increase in the exchange rate will further increase Nigeria’s import value by about 55 percent. However, none of the independent variables were found to be statistically significant in the long run. In conclusion, the study recommends a comprehensive approach to mitigate arbitrage opportunities and ensure the stability of the naira in the foreign exchange market. Key words: Foreign Reserve Position, Exchange Rate, Imports, Arbitrage
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