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How to Tackle Economic Uncertainty Through the Money Markets

Wednesday, 21 July 2021

Read any of our special reports and you’ll know that the economy is never static. As such, major elements within Nigeria’s economy are in a constant state of flux. Whether it’s food prices spiking or uncertainty regarding the cost of fuel, the economic markers are always changing. That makes it hard to predict whether our country’s fortunes are going to be up or down.

Gauging the Economy Through Forex

Source: Pixabay

Of course, if you did know exactly when the economy was going to be strong and when it was going to dip, you could act accordingly. When the economy is strong, it’s a time of relative plenty and resources are easier to come by. When it’s weak, money is less available and resources become scarce. That, in turn, pushes up prices. Therefore if you can forecast these swings, you could capitalise on them.

We’re not suggesting that anyone can control these movements. Moreover, there isn’t a definitive way to make predictions. However, even if you don’t have a degree in economics, there are ways to gauge the state of the economy. Listening to the experts is one way. Another is to read the latest news stories. When we report on things like the 2020/2021 recession, you know that things aren’t good. A less obvious but effective way to gauge the economic state of Nigeria is currency.

A country’s trade can be influenced by the relative value of its currency. In other words, if a currency is “strong” compared to another, it will affect the price of imports and exports. In context, a strong currency is worth more than another in comparative terms. For example, if the naira is worth double Cameroon’s Central African CFA franc, then it would be classed as a stronger currency. This relationship can swing in the other direction.

However, when a currency is stronger than another, it lowers the cost of purchasing goods from that country. So, in this example, if the naira is stronger than the Central African CFA franc, it costs less to buy exports from Cameroon. This can have economic benefits in the sense that Nigeria can import more goods at a cheaper cost. These savings get passed on to consumers who, in turn, get more value for their money.

Monitor the Money Markets to Manage Your Own Finances

The relative strength or weakness of a currency may not be useful to the individual as it’s not something they can control. However, you can observe the ebb and flow of currencies and their value via the forex markets. Otherwise known as FX trading, the process of buying and selling currency pairs is based on the relative value between two currencies as well as the spread between both prices. Traders assess currencies in pairs and try to predict whether one will strengthen or weaken with the other. These changes in value determine whether a trader makes a profit or loss.

Modern online trading sites not only give you access to 34+ currency pairs and the ability to go long or short, but they also offer market insights, charting, and analytics. Basically, they’re hives of information about global currencies and the FX market. As an individual, you can use this information to judge the state of the naira. In turn, you can use that as an economic guide. It’s not a foolproof system, but it’s a great place to start. Again, knowing the state of the economy won’t help you change it.

However, knowledge is power, particularly when it comes to financial matters. Therefore, the more knowledge you have about the state of the economy and where it may be heading, the better decisions you can make about spending, saving, and investing. That’s the point. Nigeria’s economy can be temperamental and the only way to give yourself the best chance of remaining financially secure is to monitor the economy and try to stay ahead of the curve.

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via: Information Nigeria

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