Most people have the wrong conceptual understanding about currency devaluation. The word devaluation makes it sound like it’s a bad thing whereas it’s not. I’ll like to share more knowledge about currency devaluation and how it affects your products and markets.
Currency devaluation is a deliberate act done in order to adjust the established rate by the government and it’s mostly done in the cases of fixed currencies and such a mechanism is used by economies that have a semi fixed exchange rate. Note that currency devaluation must not be mistaken for currency DEPRECIATION. There’re two main reasons for devaluing currencies which are named below:
- To boost exportation and discourage importation;When devaluation occurs , domestic currencies becomes cheaper in foreign markets this helps in increasing exports and decreasing imports. This will help exporters easily sell their products in foreign lands. It provides a upper hand for exporters in a competitive market. For example if a laptop producer in Nigeria sells at $X and laptop producer in America sells for the same price. If it happens that Nigeria devalued it currency, the laptop producer in Nigeria will sell for a lower price which will be $X - y while the laptop producer in America still sells for $X. This will help the laptop producer in Nigeria sell its products faster and easily.
— To narrow trade deficit
Trade deficit is the difference between exports and imports. Currency devaluation boosts exports and makes exports cheaper thereby making imports costly. During the moment when a country devalues its currency importers will find it hard cause prices of commodities will increase which will affect either the selling price or their projected profits.
For example a country like Nigeria that depends solely on imported products, when the currency is devalued, the prices of commodities increases and this affects the citizens largely since exports is less.
The question now is how do business owners benefits from this.
I’d advice any business owner either importer or exporter to always keep tabs with business news and rumors. Business owners that deals with imports should hoard their products if there’s any rumor of currency devaluation. This will help them make more profit if at all the currency is eventually devalued. Let me explain how. An importer A that bought his products at a price of $100 will be expecting to gain at least $40. If importer A hoard his products and the currency is devalue, the price of the product will increase thereby making other importers sells at a high prices. In order to make profit importer A can choose to sell at the prices other importers are selling their products. He can also choose to sell at the normal price so as to make quick sales. This will offer importer A flexibility and an upper hand above others. I hope you understand the drifts.
I shared this tutorial in Oder to help business owners understand their markets more.
Please if there’s any addition or question, drop them below.
Currency devaluation is a deliberate act done in order to adjust the established rate by the government and it’s mostly done in the cases of fixed currencies and such a mechanism is used by economies that have a semi fixed exchange rate. Note that currency devaluation must not be mistaken for currency DEPRECIATION. There’re two main reasons for devaluing currencies which are named below:
- To boost exportation and discourage importation;When devaluation occurs , domestic currencies becomes cheaper in foreign markets this helps in increasing exports and decreasing imports. This will help exporters easily sell their products in foreign lands. It provides a upper hand for exporters in a competitive market. For example if a laptop producer in Nigeria sells at $X and laptop producer in America sells for the same price. If it happens that Nigeria devalued it currency, the laptop producer in Nigeria will sell for a lower price which will be $X - y while the laptop producer in America still sells for $X. This will help the laptop producer in Nigeria sell its products faster and easily.
— To narrow trade deficit
Trade deficit is the difference between exports and imports. Currency devaluation boosts exports and makes exports cheaper thereby making imports costly. During the moment when a country devalues its currency importers will find it hard cause prices of commodities will increase which will affect either the selling price or their projected profits.
For example a country like Nigeria that depends solely on imported products, when the currency is devalued, the prices of commodities increases and this affects the citizens largely since exports is less.
The question now is how do business owners benefits from this.
I’d advice any business owner either importer or exporter to always keep tabs with business news and rumors. Business owners that deals with imports should hoard their products if there’s any rumor of currency devaluation. This will help them make more profit if at all the currency is eventually devalued. Let me explain how. An importer A that bought his products at a price of $100 will be expecting to gain at least $40. If importer A hoard his products and the currency is devalue, the price of the product will increase thereby making other importers sells at a high prices. In order to make profit importer A can choose to sell at the prices other importers are selling their products. He can also choose to sell at the normal price so as to make quick sales. This will offer importer A flexibility and an upper hand above others. I hope you understand the drifts.
I shared this tutorial in Oder to help business owners understand their markets more.
Please if there’s any addition or question, drop them below.
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