www.treasurenetwork.wordpress.com
TreasureMagazine7
What about Exchange
rate?
By Julius O. Akubo
Geographically, people are located at different locations of the world hence the existence of
various distinguishing mediums such as currencies, dressings, cultures and even business
activities. Over the years the increasing insatiable human needs accompanied by geographical
limitations has brought about the need for some form of ’’inter-trade“ amongst this various
geographic locations. For effective trade to exist therefore there was need for an exchange rate
to ensure equality in the transactions.
What is Exchange rate?
Exchange Rate is the price of a nation's currency in terms of another currency. It is the
equivalence or worth of a nation’s currency when compared to another country's currency. This
means that exchange rate has two components, the domestic currency and a foreign currency. It
can be quoted either directly or indirectly.
Devaluation and Depreciation of Exchange rate
Devaluation is when a country deliberately decides to lower its exchange rate in a fixed or semi
fixed exchange rate based on a particular policy while depreciation is said to occur when there is
a fall in the value of a currency in a floating exchange rate. It is purely a function of supply and
demand side factors and not a government oriented decision aside from if the government chose
to sell plenty of their currency.
6