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
- University of Ilorin, Kwara State 398
- University of Jos, Jos, Plateau State 19
- University of Lagos 18
- University of Maiduguri ( - Elearning), Maiduguri, Borno State 3
- University of Maiduguri, Borno State 109
- University of Nigeria, Nsukka, Enugu State 268
- University of Port Harcourt Teaching Hospital, Port Harcourt , River State 5
- University of Port-Harcourt, Rivers State 173
- University of Uyo, Akwa Ibom State 206
- Usmanu Danfodio University, Sokoto, Sokoto State 245