CHAPTER ONE INTRODUCTION         Background of the Study

Exchange rate is considered as a principal determining factor of world trade and it has received much attention due to its global imbalances (Alegwu, Aye & Asogwa, 2017). Exchange rate or foreign exchange rate or Forex rate has been described as how much one currency is worth in terms of another. Past years experienced instability which has impacted on exchange rate and trade issues. According to Umaru (2013), the world’s most powerful economies including the United States and China are typical examples to have experienced exchange rate instability. Exchange rate volatility has been defined as “the persistent fluctuation of the exchange rate” (Alagidede & Ibrahim, 2017, pg. 169). Issues surrounding exchange rate volatility have dominated studies due to its importance in both national and international finance and trade. Alagidede and Ibrahim (2017) are of the view that, exchange rate volatility mostly affects developing countries hence has become a major concern to many of these countries.

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