Abstract
This work evaluates the trends in the parallel market exchange rate premium, its
determination and impact on the foreign exchange market in Nigeria. It examines the
impact of existing demand and supply gaps in the overall foreign exchange market on
the determination of the parallel market premium. It further examines the impact of
the parallel market exchange rate premium on the determination of the official
exchange rate and the parallel market rates. The study uses the stock-flow model of
Kiguel and O’connel (1994) to examine the impact of the parallel market exchange
rate premium on the determination of the official exchange rate and the parallel
market exchange rate.
The estimation results reveal that the parallel market exchange rate premium has a
significant negative effect on parallel market exchange rate in Nigeria. Thus, an
increase in the foreign exchange rate premium tends to reduce the next round of
parallel market exchange rate. On the other hand, the parallel market exchange rate
premium affects the official exchange rate positively. This is because a high premium
on the parallel market exchange rate tends to increase the demand for foreign
exchange at the official rate. The examination of the impact of the demand and supply
gaps in the foreign exchange market shows that the coefficient of exchange rate
imbalance can be negative or positive depending on whether there is excess demand
or supply condition in the market.
Onyukwu, D (2021). An Empirical Study Of The Foreign Exchange Rate Premium In Nigeria (1970-2007).. Afribary. Retrieved from https://afribary.com/works/an-empirical-study-of-the-foreign-exchange-rate-premium-in-nigeria-1970-2007
Onyukwu, Dr. "An Empirical Study Of The Foreign Exchange Rate Premium In Nigeria (1970-2007)." Afribary. Afribary, 05 May. 2021, https://afribary.com/works/an-empirical-study-of-the-foreign-exchange-rate-premium-in-nigeria-1970-2007. Accessed 24 Nov. 2024.
Onyukwu, Dr. . "An Empirical Study Of The Foreign Exchange Rate Premium In Nigeria (1970-2007).". Afribary, Afribary, 05 May. 2021. Web. 24 Nov. 2024. < https://afribary.com/works/an-empirical-study-of-the-foreign-exchange-rate-premium-in-nigeria-1970-2007 >.
Onyukwu, Dr. . "An Empirical Study Of The Foreign Exchange Rate Premium In Nigeria (1970-2007)." Afribary (2021). Accessed November 24, 2024. https://afribary.com/works/an-empirical-study-of-the-foreign-exchange-rate-premium-in-nigeria-1970-2007