What Causes Fluctuations In the Exchange Rate?


If you are a player in the forex exchange market, then you need to know what the drivers of this market are. There are things that you need to have a player so that you can take advantage of the fluctuation in the exchange rate. The business involves the exchange of currencies. For instance, it can involve converting the USD to the NGN.

Among the factors that influence the exchange value of a currency includes the central bank policy of the said country. For instance, the USD has been pegged at 310 nairas by the central bank of Nigeria. The policy has the effect of lowering, raising or fixing the exchange rate so as to protect the interest of the country. The currency may be devalued so at to make it cheap and attract investments from abroad. This is what has happened with the Nigerian naira. A currency might, on the other hand, is appreciated so as to make it expensive and reduce imports. At other times, the movements may choose to let the currency be traded in the floating exchange rate system Nigeria wanted to the effect that policy through challenges has made the monetary authorities to use the fixed exchange rate system such as for 100 usd to ngn again.

Control of the country currency exchange rate with other currencies has its benefits and its evils. Among what is viewed as evil effects of a fixed exchange rate system is the growth of the black currency exchange rate system. The parallel market rates are more flexible and reflective of the currency value. If you want to exchange your USD for the NGN at the current exchange rate in the black market, the exchange rate dollar to naira are 1 USD goes for 480NGN. The black market is highly used by many people who are other doing legitimate business and find the supply of dollars in the legal market being too scarce. For this, they ‘re ready to pay a higher price to get the USD.

There is what economist refers to a floating equilibrium. This is the exchange rate which tends to be a bit steady and around which the daily exchange rates tend to float around. The equilibrium exchange rates change over time and may be affected by different thins. The recent elections in the US, for instance, tilted the balance of the exchange rate to the US as many African countries had higher levels of anxiety. International money crisis and debt crisis in the said country can make the exchange rate of a country currency to deteriorate.


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