• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

InvestSmall

  • Personal Finance
  • Corporate Finance
  • Capital Market
  • Reviews
  • Find an Investment

Foreign Exchange Rates: What You Should Know

May 29, 2020 by Finance 3 Comments

The concept of foreign exchange rates has been in existence for over a century. Essential in the study of forex computation is the understanding of the meaning of specific terminologies. These technical terms are useful in the analysis of foreign exchange transactions.

What is Foreign Exchange Rates

The foreign exchange rate of a currency can be referred to as the rate at which a stated value of a nation’s currency can be exchanged against another convertible currency(ies).

It can also be defined as an economic activity that involves how wealth expressed in one country’s currency are exchanged in terms of another country’s currency at a particular rate and time.

Types of Exchange Rates

Currency Rate: This rate relates to the one in which the variable amount of foreign currency is quoted in terms of a fixed unit of local currency. For instance, N1 = 0.0026USD. From the example above, the local currency is fixed, while the foreign currency fluctuates.

Pence Rate: This rate refers to the rate in which the variable amount of local currency is quoted in terms of a fixed unit of foreign currency. For instance, $1 = N367

When you compare this to the currency rate, the foreign currency is fixed while the local currency fluctuates steadily.

Cross Rates: this can be referred to as rates which enable foreign exchange dealers to purchase the currency of a third country that is not directly convertible to the dealer’s currency. It is an exchange rate of two different country’s currency expressed in a third different country’s currency. The third currency is usually a common currency like the US dollar

Read this -  Agency Banking in Nigeria explained

Spot rate:  spot rate is the price quoted for instant settlement on security or currency. It is quoted immediately for delivery of the currency to the buyer at least within two working days. It is the ruling rate on a particular day.

Who Are The Major Players In The Foreign Exchange Market

The major players of the foreign exchange market are categorized into the groups mentioned below, and they are;

  1. Central Banks
  2. Commercial, Merchant and Investment Banks
  3. Foreign Exchange Brokers
  4. Hedge Funds
  5. High Net-Worth Individuals
  6. Major Companies and Multinational Corporations
  7. Bureau De Change: Black Market Dealers

Need For Foreign Exchange

The following reasons usually instigate forex demands: 

Trading: in an economy like Nigeria, where the nation relies heavily on imports, the trade must settle business transactions with foreign currency. This will trigger the need to buy foreign exchange through any of the authorized dealers.

Investments Abroad: In a situation where an investor discovers that the return on investment is more in a foreign country than is available in his local environment. He will demand foreign exchange to enable him to trade his money in the forex market.

Speculation and Hedging: Speculations can trigger the demand for foreign exchange. This is based on the anticipated movement in the exchange rate or devaluation of a particular currency.

Personal Uses: People purchase foreign exchange for personal use such as traveller’s cheque, subscriptions, or settlement of fees for a school abroad.

Conclusion 

Several factors affect the supply and demand for foreign exchange. They include but not limited to:

  1. Inflation Rate and Price Level
  2. Interest rates in other countries
  3. Confidence and speculations
  4. Balance of Payment – The difference between the country’s earnings from exports and expenses from imports
  5. Exchange Control Regulations
  6. Foreign investments
  7. Central Bank Intervention
Find An Investment
Post Views: 11

Related Posts:

  • Fixed Deposit and Its Interest Rate in Nigeria
  • Foreign Direct Investment: Meaning, Types, and How…
  • COVID-19: Impact On Foreign Direct Investment in Nigeria
  • Who Are The Dealing Members Of The Nigerian Stock Exchange
  • Listing Requirements of The Nigerian Stock Exchange
  • Merger and Acquisition in Nigeria - What You Should Know

Filed Under: Corporate Finance

Reader Interactions

Comments

  1. bandar ceme says

    January 10, 2021 at 11:19 pm

    534015 399889I just added this blog to my rss reader, superb stuff. I like your writing style. 750006

    Reply
  2. sahabatqq login says

    January 11, 2021 at 12:58 pm

    375013 656092very nice publish, i undoubtedly enjoy this web website, keep on it 849371

    Reply
  3. CI/CD says

    January 15, 2021 at 1:08 am

    349676 553208Couldn?t be designed any greater. Reading this post reminds me of my old room mate! He always kept talking about this. I will forward this report to him. Pretty certain he will possess a excellent read. Thanks for sharing! 744342

    Reply

Leave a Reply Cancel reply

Your email address will not be published.

Primary Sidebar

Recent Posts

  • Investing in Treasury Bills in Nigeria – What you should know
  • Personal Finance – 5 areas you can improve on your personal finance
  • List of agricultural investment platforms you can invest in Nigeria – 2021 updated
  • Top 5 Forex investment companies in Nigeria.
  • List of 2021 registered stockbrokers in Nigeria

Related Posts:

  • PiggyVest Review: All You Need To Know Before Using…
  • 5 Investment Pitfalls You Should Avoid
  • COVID-19: Impact On Foreign Direct Investment in Nigeria
  • PENCOM Investment - All You Should Know
  • Cowrywise Review: All You Need To Know Before Saving…
  • Merger and Acquisition in Nigeria - What You Should Know

Footer

  • About Investsmall
  • Disclaimer
  • Terms Of Use
  • Contact us

Copyright © 2021 Invest Small. All Rights Reserved