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Foreign Exchange – Dollar to Naira International trade has grown tremendously in the current century. Trade outside boundaries of a country has consequently grown. For such business to be successful, it is important for business men and women to invest in different currencies from time to time. 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 what makes foreign exchange very important particularly to business men and women. An important factor to consider for many business people including governments are the rates of foreign exchange. The importance of this is pegged on how a small change in exchange rates could affect business tremendously. Being able to observe and forecast foreign exchange markets is therefore important to business men. The American dollar is usually the main comparing point for most currencies world wide. This is because of the number of people internationally who use the dollar for their business activities. Let us consider a specific case of how the Nigerian currency compares to the United States Dollar. In the first instance the current exchange rate of the Naira is three hundred and fifteen Naira to one American dollar. This exchange rate is however not fixed since it fluctuates from time to time. 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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Inflation is a key factor that dictates how currencies exchange in the foreign exchange market. Inflation affects exchange rate by affecting the prices of commodities in the commodity markets. Case in point is when prices of commodities in Nigeria suddenly undergo high fluctuation, this consequently affects how the Naira compares to the dollar. 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. Case in point is when banks that operate within Nigeria decide to raise interest rates which consequently has an effect on how the Naira exchanges to the dollar. The government of Nigeria has ensured that interest rates are moderated to protect the Naira against fluctuations in foreign exchange markets. 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.