Does the Theory of Interest Rate Parity Hold for Nigeria
Student: Abubakar Alh Abubakar (Project, 2025)
Department of Banking and Finance
Federal University, Dutse, Jigawa State
Abstract
AbstractThis study examines whether the Interest Rate Parity (IRP) theory holds for Nigeria’s financial markets. The theory posits that the difference in interest rates between two countries equals the expected change in their exchange rates, ensuring no arbitrage opportunities. Using empirical data on Nigerian interest rates, inflation, and exchange rate dynamics from 1970 to 2021, the study tests both covered and uncovered IRP conditions. The results reveal significant deviations from the theory, mainly due to market inefficiencies, exchange rate volatility, and capital controls. The findings suggest that while IRP provides a useful theoretical framework, its practical application in Nigeria is limited. The study recommends policy reforms to enhance market efficiency, reduce distortions, and strengthen Nigeria’s integration into the global financial system.
Keywords
For the full publication, please contact the author directly at: abubakaralhrng@gmail.com
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Institutions
- Novena University, Ogume, Delta State 1
- Nuhu Bamalli Polytechnic, Zaria, Kaduna State 7
- Nwafor Orizu College of Education, Nsugbe, Anambra State 1
- Obafemi Awolowo University, Ile-Ife, Osun State 15
- Oduduwa University, Ipetumodu, Osun State 9
- Ogun State College of Health Technology, Ilese-Ijebu, Ogun State 1
- Ogun State Institute of Tech(formerly Gateway Ict Poly), Igbesa, Ogun State 4
- Olabisi Onabanjo University, Ago-Iwoye, Ogun State 38
- Ondo State University of Medical Sciences, Laje Road, Ondo, Ondo State 1
- Osun State College of Education, Ila-Orangun 1