A CRITICAL APPRAISAL OF THE IMPACT OF FOREIGN EXCHANGE VARIATIONS ON SMALL SCALE BUSINESS ( A CASE STUDY OF PHINA PAINT INDUSTRIES LIMITED, AWKA, ANAMBRA STATE 1982 €“ 86

A CRITICAL APPRAISAL OF THE IMPACT OF FOREIGN EXCHANGE VARIATIONS ON SMALL SCALE BUSINESS ( A CASE STUDY OF PHINA PAINT INDUSTRIES LIMITED, AWKA, ANAMBRA STATE 1982 – 86

ABSTRACT

            The aim is to find out the important of exchange rate variation on small scale industries in Nigeria especial under the tree floating exchange rate system which Nigeria opted for since the last quarter of 1986. A compendium of the research work is t hat exchange rate variation do have grate impact on manufacturing industries. It raises prices of materials inputs, reduces output of manufactures, and reduces demand and capacity utilization of firms especially where the movement (variation) of the exchange rate is against the manufactures country by being demand.

CHAPTER ONE

1.0         INTRODUCTION

A critical look at the work or purchasing power of the naira today and what it had been in the 705 and early 80s when Oil (Petroleum) was booming would reveal the fact t hat the value of naira in relation to other currencies is devalued. Variation in exchange rate is not peculiar to Nigeria alone but3 is a fact of life prevalent in virtually all countries of the world. From the suspension of U.S dollars convertibility into gold in August 1971 made possible by President Nixon (1971) and consequent floatation of the dollar, business firms with overseas interest or rather manufactures which import or expert have been faced with uncertainties as to the investment of their base currency.

In this resolution by the 43 member countries in the Breton woods conference of 1944 which culminated to the setting up of the international monetary fund (I.M.T), each subscriber to the fund agreed to maintain the external value of its currency with 1 percent of its par value with the U.S Dollar. This, member countries were granted the right to revalue or devalue its chancy on the consent of other subscribers to the fund provided such revaluation or devaluation is not greater than one percent and that the is not grater than one percent and t hat the (1944) described as fundamental disequilibrium in its balance of payments’ as this agreement ensures a kind of stability (fixed Exchange Rate) of exchange rate of currencies currency movement were not key risk area faced by the

Manufacture s that trades internationally. Manufacturing firms rather give though to other problems facing them such as social responsibilities and labour relatives while discharging or giving lesser thought to exchange rate variations.

As identified by Richard Lassen (1982) the period of stability enjoyed by the manufacturing fir ms since the Briton woods conference was change with the events of 1971. The Dutch qguldern floated in may 1971 flowed by the floating of the U.S dollar and the consequent deionization of gold in August 1971. By the end of 1971 (December 1971) the smithariah Agreement made an attempt to re –established fixed parties just as it was during the Bretton wood Agreement except that wider margins round the morale peg of t he international momentary fund t he (I.M.T) were allowed 2.25 percent fluctuation in its exchanges rate on either side of t he parity. The defiling of the U .S. dollar from gold which rendered the dollar in invertible ushered in a period of psoriatic floating of currencies and hence a look to exchange rate variations was opened. In Nigeria, fluctuating exchange rate had its inception with the introduction of the second – Tier foreign Exchange market on September   29, 1986. The relaxation of the fixed exchange rate existed in Nigeria until 1986 and the introduction of the foreign Exchange market (F.EM) led to a sharp decline of the value of naira. The value of naira according to Chizen Benefice (1988) witnessed a steep depreciation of about 66  percent pre – FIEM and from their the rate has  not been stabilizer but continued to move up and down and in most cases the movement was against the naira.

A CRITICAL APPRAISAL OF THE IMPACT OF FOREIGN EXCHANGE VARIATIONS ON SMALL SCALE BUSINESS ( A CASE STUDY OF PHINA PAINT INDUSTRIES LIMITED, AWKA, ANAMBRA STATE 1982 86