The Foreign Exchange Market

To ask the question again: why is it that when the dollar sneezes the naira catches cold? And even the euro, the pounds, the yen? Why is it that the naira tends to lose to all the major international currencies?

That brings us to a discussion on foreign exchange. Essentially this exchange occurs when you swap values between currencies usually for the purpose of trade. As in all markets, supply and demand plays a role.

A country that has a lot of valuable things to trade, a large quantum of goods and services that are globally in demand, would naturally have many others rushing to buy them. There’ll be a great demand for its currency by people all over the world who want to import them.

A country that produces not much of value-added goods and yet can’t do without them, will be chasing for the foreign currency, the foreign exchange to buy those goods. Its currency will, as a matter of course, be weaker than its counterpart. The weaker currency will be prone to volatility and declines because of its import dependency.

For those two countries, read the U.S. dollar and the Nigerian naira. Within the volatilities of this relationship between and among currencies there also exist opportunities for profitable swaps of positions as currencies rise and fall.

Through the information and analysis we produce, we hope the reader would find a useful guide to beneficial decisions on their personal finance.

At the moment, Nigeria operates a multiple exchange-rate system. There’s a central bank rate for government transactions and an interbank rate currently defined by transactionson the exporters and importers window. Then there’s the parallel-market rate, respresting the rates used in street transactions or bureau de change.

A Nigerian or resident going on an international travel can either apply for a business travel allowance or a personal travel allowance. For imports, foreign exchange can be accessed from the central bank through the banks. The central bank also makes regular interventions at the interbank foreign exchange market aimed at meeting the needs of importers as well as other users, such as those seeking to pay school fees or medical bills. Foreign exchange is also sold to approved money changers for onward selling to customers.

Useful link: Licensed Bureaux de Change in Nigeria.