Foreign Exchange – Dollar to Naira
There has been witnessed a very huge growth in international growth particularly in the current century. This means that there are very many people who are conducting trade beyond their country’s borders. To achieve such trade, one needs to constantly use different foreign currencies. An example is in the constant use of both the American dollar and the Nigerian Naira by business men and women who trade between United States and Nigeria. This is why the concept of foreign exchange is quite important especially to business people.
Rates of exchange form a very important aspect of consideration not only by governments but as well as business men and women. Small changes in exchange rates could affect trade at a very large extent. The ability to precisely predict how foreign exchange markets will fluctuate from time to time is therefore a very important piece of knowledge for business people. Exchange rates are in most instances linked to the United States dollar as opposed to directly comparing them to other currencies. This is mainly because of the extent over which the dollar is used in international trade.
Let us consider a specific case of how the Nigerian currency compares to the United States Dollar. First of all the current exchange rate for the Nigerian Naira in comparison to the United States dollar is three hundred and fifteen Naira to the dollar. This exchange rate is not steady since it keeps changing with time due to different reasons. This brings us to the important point of the determining factors for exchange rates between two currencies. Several reasons can be put forward to explain why the dollar changes at different rates to different currencies in the world.
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One of the factors that affect exchange rate are inflation. Inflation basically affects the commodity markets which in turn affect the value of currencies. An example is how the Naira compares to the dollar when prices of commodities within Nigeria change abruptly and sharply. It is therefore very important for countries to put measures that serve to curb inflation in order to cushion their currencies from sharp fluctuations in the foreign exchange markets.
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Changes in interest rates within a country could also determine foreign exchange rates involving the currency of the country in question. For instance, if banks within Nigeria alter their interest rates considerably, this would definitely have an effect on how the Naira would exchange to the dollar. Interest rates within Nigeria have been stabilized considerably to achieve the exchange rate for the dollar to Naira today. Other factors that dictate how currencies compare to others in foreign markets include balance of payments as well as government debts if any. Political stability and market speculation are non economic factors that also affect foreign exchange.