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
- AVE-MARIA UNIVERSITY, PIYANKO, NASARAWA STATE 1
- Babcock University, Ilishan-Remo, Ogun State 7
- Bamidele Olumilua University of Edu. Science and Tech. Ikere Ekiti, Ekiti State 453
- Bauchi State College of Agriculture, Bauchi, Bauchi State 1
- Bauchi State University, Gadau, Bauchi State 16
- Bayelsa State Polytechnic, Aleibiri, Bayelsa State 13
- Bayero University, Kano, Kano State 583
- Benue State Polytechnic, Ugbokolo, Benue State 10
- Benue State University, Makurdi, Benue State 47
- Bingham University, Karu, Nasarawa State 3