A TEST OF LIMITS TO ARBITRAGE: DEMONSTRATION FROM NIGERIAN FOREIGN EXCHANGE MARKET

Osagie OSIFO (Ph.D), Moyotole Daniel EZUEM (M.Sc.)

Abstract

This paper empirically examines limits of Arbitrage in Nigeria. The aim of the study is to demonstrate that there exist arbitrage gains in Nigerian foreign exchange market. This study employed survey and descriptive research design to demonstrate the existence of arbitrage gains in foreign exchange market in Nigeria using different Naira to Dollar rates for different purpose (Pilgrimage, Budget, Western union, BDC, Travelex, Inter –bank, Foreign medical trip and Special airline funds). The findings of the study reveal that convergence was close between BDC, Western union and parallel market rates. The “widest” margin was visible in that of pilgrim’s rate, budget rate and inter-bank rate. The paper therefore recommends that the Central Bank of Nigeria (CBN) being the regulatory authority in Foreign exchange market should have a single exchange rate in the market so that convergence can be attained.

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