Question
Read the extract below and answer the questions that follow: Naira crashes further at official market as demand pressure persists Friday, 24th September 2021: The
Read the extract below and answer the questions that follow:
Naira crashes further at official market as demand pressure persists Friday, 24th September 2021: The exchange rate between the naira and the US dollar closed at N414.90/$1, at the official Investors and Exporters window. Naira depreciated against the US dollar on Friday, to close at N414.90/$1, representing a 0.29% drop when compared to N413.68/$1 recorded on Thursday 23rd September 2021. Meanwhile, the exchange rate at the parallel market closed at N575/$1 on Friday. This is according to information obtained by Nairametrics from BDC operators in Lagos. The local currency dropped to a record rate at the official market as demand pressure hit the forex market despite a 10% improvement in dollar supply. ... Crude oil price Oil prices surged at the beginning of the week's trading with Brent Crude rising by 1.43% to trade at $79.21 as of Sunday evening on signs that the crude market is tightening because of a global energy crunch. West Texas Intermediate topped $75 a barrel after a run of five weekly gains, while Brent hit the highest level since October 2018. Inventories have been drawing, with U.S. stockpiles near a three-year low. At the same time, a rally in natural gas looks set to drive demand for oil as users switch fuels. Oil has surged more than 80% over the past year as worldwide demand recovers from the disruption caused by the pandemic. On the supply side, the Organization of Petroleum Exporting Countries and its allies including Russia have been easing output curbs only slowly, permitting markets to tighten. (Source: https://nairametrics.com/2021/09/27/naira-crashes-further-at-official-market-as-demandpressure-persists/)
3.1 The diagram below illustrates the equilibrium position in the foreign exchange market for Naira. Taking the above article into consideration, explain how the demand and/or supply of Naira would change that would result in depreciation of the Naira. (20 MARKS )
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