Understanding Foreign Exchange, External Reserves and the Naira Exchange Rate

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By Mike Idi Obadan

IN recent months, developments in the Nigerian foreign exchange market have elicited reactions from stakeholders, some of which reflect understanding while others do not. This piece seeks to throw light on the issues relating to foreign exchange, external reserves and naira exchange rate instability.

Foreign exchange is relevant in the context of world trade, payments and capital flow into and out of a country. It is the monetary instrument for the settlement of international transactions and for financing imbalances in a country’s external payments position vis-à-vis other countries.

Foreign exchange forms a major component of a country’s external reserves which according to the International Monetary Fund (IMF) consists of “official public sector foreign assets that are readily available to, and controlled by the monetary authorities, for direct financing of payments imbalances, and directly regulating the magnitude of such imbalances, through…



Source: Vanguard Newspaper