Foreign Exchange Market Efficiency in Nigeria (The Past and Current Exchange Rate Returns)

The foreign exchange market in Nigeria has always been much in contention as to its inefficiency and consequent impact on various sectors of the economy. This study therefore assessed the efficiency of the foreign exchange market in Nigeria, and by extension, test whether the past exchange rate affected the current exchange rate returns. The scope of the study covered the period from 1985 - 2016. The data employed were secondary time-series data. The data were analyzed with two equations and estimated using Fully Modified Ordinary Least Square Approach (FMOLS). The time series properties of the data were tested by the use of ADF unit root test and Co-integration test. The finding of the study revealed that oil price, GDP, inflation rate, and interest rate have positive and significant relationships with exchange rate; while broad money supply (M2) has a negative relationship with exchange rate. Also, previous exchange rate returns has negative and insignificant relationship with current exchange rate returns. The study thereby concluded that the exchange rate market in Nigeria is inefficient. It was therefore recommended the monetary authorities should ensure transparency in determining exchange rate process such that various economic distortions associated with exchange rate can be minimized, and strict monetary policies should be pursued. Also, a properly designed and execution of fiscal and monetary policies should be adopted and diversification of the economy a priority.