CHAPTER ONEGENERAL INTRODUCTION1.1 BACK GROUND OF STUDYRight from time immemorial, a country’s exchange rate and balance ofpayment is usually regarded as the sum of indices by which a nation’s strength canbe measured especially its economic strength. Paul (1996) defines balance ofpayments as an accounting record to all monetary transactions between a countryand the rest of the world.These transactions include payments for the country’s exports and imports ofgoods, services and financial capital, as well as financial transfer. It summarizesthe international transaction for a specific period usually one year and is preparedin single currency for the country concerned. Nzotta (2004) defines foreignexchange as the value of foreign nation’s currency in terms of the home nationcurrency. In finance, the exchange rates (as also known as the foreign exchangerate or forex rate) between two currencies specify how much one currency is worthin terms of the other.Devaluation is tall in a fixed exchange rate, which reduces the value of acurrency in terms of other currencies. So what we are trying to do in this study is todetermine how the reduction value of a currency with respect to the currency ofanother country affect the record of all monetary transactions between a countryand another, whether visible or invisible in a period of time. This is very importantbecause no nation can exist on its own no matter how independent or self-sufficientit can be, it is important to have a relationship with other nations which can becharacterized by goods and services going one way and foreign exchange goingthe other way. When accessing the nation involved, a record of gains and lossesmay have been kept. As such a nation’s foreign exchange and balance of paymentscan help slowdown, accelerate or decelerate walking growth progress anddevelopment. This will also have a positive or negative effect on the citizens sinceit deals mainly with economic relations.Our nation Nigeria is currently facing serious problems regarding its foreignexchange rating (which is very low in comparison to other countries) and it’sBalance of payment which is clearly in disequilibrium and in a deficit. As a resultof this the government is retrogressing and the citizens clearly suffering.It is in a bid to discover why this is so and how this can be solved that thisstudy as pertinent.