Dollar Funds Exchange Rate

Need clarification on how exchange rates works?

Ope avatar
Written by Ope
Updated over a week ago

Wonder why you see the buy rate and sell rate and what it means for your investment?

Your Naira investment balance is valued based on the sell exchange rate after an investment is processed, which is slightly lesser than the buy exchange rate at every point.

I'd break this down as much as possible so you understand it well.

The price is subject to change for the Eurobond funds at the end of each business day. However, there are two exchange rates($ to ₦); the 'buy' exchange rate and the 'sell' exchange rate.

The buy rate is the rate at which you purchase the fund while the sell exchange rate is the rate at which your investment is valued and also the rate at which you sell/liquidate the fund.

The investment plan page will contain information that looks similar to the image shown below when you are buying or selling your mutual funds units to get cash value.

Please keep in mind that the figures shown here are just for illustrative purposes, and the actual exchange rate is shown on the app per time.

To make sense of this better, let's make use of figures;

  1. 'Investor A' invested $100 at a prevailing buy exchange rate of at ₦ 758 to a Dollar in a fund and paid a Naira value of 75,800. The investment is processed at $121.19 unit buy price and 0.825 units of the fund were allocated to investor A.

  2. Investor A's Dollar balance after the investment is processed will be $100 and the Naira balance will be ₦ 74,500 based on the sell exchange rate of ₦ 745

Please note that the figures here are approximated to reduce ambiguity

What this means is that Investor A would get cash value based on the prevailing sell price when the investment is redeemed. Real gains happen on dollar mutual funds in 2 ways;

  1. When the unit sell price increases above the unit buy price you invested at.

  2. When the sell exchange rate increases above the buy exchange rate invested at.

To reiterate and explain further, the dollar funds earn in the 2 ways below;

  1. Capital Appreciation: Here, gains are measured when the price per unit of the fund increases daily. So if yesterday, the price/unit was $100 and today the price increased to $101, the investor has gained 1 dollar between yesterday and today. The opposite is also possible.

  2. Exchange Rate Appreciation: Here, gains are measured when the exchange rate increases. So when the dollar appreciates against the dollar investors gain and vice versa.

Feel free to chat with us if you have questions or need clarification. Just click the chat button at the bottom right.

Did this answer your question?