Every day, the global economic, foreign exchange rates between countries are extremely volatile.
Traders in Nigeria who are willing to go deeper beyond the arena of stock trading would find themselves in a big world of currency markets. People in Nigeria are used to searching for the euro to Naira exchange rate in the black market, and even pounds to Naira black market.
Euro to Naira Exchange Rate in Black Market Today October 2016 (Updated Daily
N500 to 1 Euro >Buying Rate
N506 to 1 Euro > Selling Rate
However, the exchange rate for foreign currencies is strange to say and anyone could wonder how you can justify such FX rate in our country: Nigeria. There are so many factors that come into play to put Naira into this tumbling situation. Read on to find out more about the factors contributing to this.
Factors Causing High Euro to Naira Exchange Rate in the Black Market
Traders might think of the price of a currency as a sort of “grade” in the world financial markets on how well a country’s economy has been doing, including how well its government is balancing fiscal and debt issues.
This also can be related to the instability of the political regime in our country. A stronger economic picture generally draws global money managers to invest in a country’s stock markets and bond market, and, of course, they need its currency to be able to buy those positions.
For every transaction a European money manager makes in the U.S. stock market, they must first purchase U.S. dollars.
There are two major factors that drive the rising and falling of foreign exchange rates in Nigeria: interest rate differentials and economic growth differentials.
Interest rate differentials simply refer to the spread or the difference between official interest rate levels. For an example, Brazil’s current official Selic rate is at 14.25% and it is dramatically more than the government Reserve’s current Fed funds rate at zero to .25%.
In this case, Brazil’s higher interest rate reflects, in fact, there is a higher risk level associated with the country and purchasing of that country’s currency. Higher interest rates are needed to attract global money flows into currencies.
For the second factor, which is the economic growth differentials, it has to deal with the strength of the country’s economy and gross domestic products.
Nigeria’s source of revenue is through Oil and that has been falling down severely for over two years now. As a result, the economy of the country is drowning gradually because that is the only source of revenue for the country.
As you can see, there is no way out around it and the fluctuation will continue everyday.
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seekingalpha contributed to this article