Nigerian foreign exchange market is influenced by a number of factors
Nigerian foreign exchange market refers to the interbank market for exchanging Nigerian national currency, the Nigerian naira. The market is closely monitored by the Central Bank of Nigeria, which has a mandate "to preserve the value of the domestic currency." A number of factors cause the Nigerian naira to change its value.
Oil Prices
Oil prices constitute a major factor that affects the Nigerian foreign exchange market. Nigeria is a big oil exporter and oil revenues are the primary source of foreign exchange for the country. No wonder, that the exchange rate of the Nigerian naira is closely linked to world oil prices.
Political and Social Stability in Nigeria
Nigeria is a volatile country. It is about equally divided among Christians and Muslims, which makes it prone to religious strife. In addition, there are a number of rebel groups operating in Nigeria, especially in the delta of the river Niger. Political and social unrest in Nigeria is always likely and could have a huge impact on the country's exchange rate.
Central Bank Policy
Central Bank of Nigeria intervenes in the foreign exchange market from time to time to preserve the value of the domestic currency and keep markets orderly. However, the Nigerian Central Bank does not interfere in the foreign exchange market to the degree that some Asian central banks, notably China's, do.
