CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
For clarity, it is pertinent that we start by defining the subject of this work. Exchange rate is the price of one currency in terms of another currency. It is the price of one foreign currency in terms of the domestic currency. It sends signals that affect consumption and investment decisions and therefore influences both the composition and value of aggregate demand and supply (CBN: Contemporary Economic Policy issues, 2003).
Exchange rate stability is therefore commitment of the government to allow the macro-economic policies to control the balance of payment. The government may fix the exchange rate policies either by legislation or by intervention in the Nigerian currency market.
According to Johnson (1984), the case for exchange rate stability is part of a more general argument for National Economic Policies conducive to international economic integration.
From a broader perspective, for exchange rate to be stable is to encourage international trade by making price of goods involved in trade
more predicable and to promote economic integration.