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Delta State University

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DELTA STATE UNIVERSITY ABRAKA
NAME: UNUZONO AJIRI D.
MAT NO: FSS/WK/10/11/197746
COURSE CODE: ECN 318
DEPARTMENT: ECONOMICS
FACULTY: SOCIAL SCIENCES
LEVEL: 400L

ASSIGNMENT
1. WHAT IS AN EXCHANGE RATE POLICY?
2. WHY WOULD YOU RECOMMEND THE ADOPTION AND IMPLEMENTATION OF A GIVEN EXCHANGE RATE POLICY TO THE BUHARI LED ADMINISTRATION IN NIGERIA?

JANUARY, 2016
1. Exchange rate policy can be refers to the policy or manner or way in which a country manage its currency in respect to other countries currencies. This policy may affect aggregate demand in an economy through its effect on export and import prices and policy makers may exploit this connection. Exchange rates can be determined under this policy in two main ways; either by government or by market forces. When it is determined by government, it is called administered or fixed or pegged. When it is determined by market forces (i.e. the forces of demand and supply), it is called flexible or floating exchange rate because the rate move freely up and down depending on the strength of the forces of demand and supply. But there are two types of flexible or floating exchange rate policies and that treating them as one can be misleading. They are the free floating exchange rate policy and the managed exchange rate policy. The free floating exchange rate policy and the fixed exchange rate policies are two extremes of the approaches to exchange rate determination. The manage floating exchange rate policy lies in between the two extremes. So far, three broad exchange rate policies have been suggested and tried; the fixed, the floating and the managed floating exchange rate policies.
2. Of these three exchange rate policies, the best one to be recommended for adoption and implementation for the purpose of economic growth and development is that of the managed floating exchange rate policy. The

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