Being in control of your finances is a great stress reliever. – Anonymous
While researching a company, I stumbled on an article with a screaming headline , ” Naira Slides to N150.27 at CBN WDAS“. The article was published sometime in 2011. I asked myself, how come a seemingly terrible situation in 2011 is now something to desire in 2020? That it, an exchange rate of N150 to the Dollar right now would be great, considering you need about N450 to exchange $1 today.
The first time I had a practical understanding of how the exchange rate works, was when my dad returned from a visit to the United States in the year 1991. He showed me dollar notes and announced the he was exchanging the dollar notes back to Naira at the rate of N14 / $1 . Imagine he had $100 in total, that means he would exchange the dollars and receive N1, 400.
I considered how the Naira has fared compared to the dollar 1991 and I can not recollect a time the currency has ever appreciated against the dollar; other than the daily fluctuations that are always corrected in favour of the dollar. As such, it may appear that a bet against the Naira, is sadly a sure bet at the moment
If we reference the 1996 official exchange rate of N21.89 with the current N386.36 , then the annual return will be 12.71% . Similarly, the black market rate in 1996 was N80, comparing that to the N450 /$1 on the parallel market today, this gives an annual rate of 7.46%. The implication of this is that the dollar investment is better done at a rate close to the official rate.
In addition, you could actually increase the return on investment above 12.71% by investing in dollar-denominated investments that could potentially give additional 5-9% to the 12.7%return. Note, that if we compared this to the All Share Index [ASI] of the Nigerian Stock Exchange in 1996 which was 5,253.11 , to the current value at 24,829.02 in June 2020, that means the annual returns is in fact about 6.69% .
From the above, one could suggest that investing in dollar-denominated investments, would likely outperform the stock market during its low periods . Fortunately, at this time, there are many dollar denominated investment on offer and it is, sadly, safe to believe that one can not technically lose money, as long as Nigeria still depends on crude-oil as a major source of Forex earnings.
Regardless, there are opportunties that from all these events. We share on this at I-MAP, learn more here.