Correct Option: D. Imports that can be bought with the naira have become costlier.
Explanation of the Correct Answer:
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Understanding Devaluation: Devaluation refers to a reduction in the value of a currency relative to other currencies. When the Naira is devalued, it means that it takes more Naira to purchase the same amount of foreign currency. For example, if the exchange rate changes from 200 Naira to 300 Naira per US dollar, the Naira has been devalued.
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Impact on Imports: When the Naira is devalued, the cost of importing goods increases. This is because importers need to spend more Naira to buy the same amount of foreign goods. If a product costs $100, and the exchange rate is 200 Naira per dollar, the cost in Naira is 20,000 Naira. If the Naira is devalued to 300 Naira per dollar, the same product now costs 30,000 Naira. Thus, imports become costlier.
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Economic Implications: The increase in import costs can lead to higher prices for consumers in Nigeria, as businesses may pass on the increased costs to customers. This can also lead to inflation, as the overall price level in the economy rises.
Why the Other Options are Incorrect:
- Option A: Goods that can be imported with the Naira have become cheaper
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Explanation: This statement is incorrect because devaluation makes imports more expensive, not cheaper. As explained, when the Naira loses value, it requires more Naira to purchase the same amount of foreign goods, leading to higher costs for imports.
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Option B: Value of other currencies relative to the Naira have become cheaper
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Explanation: This option is misleading. When the Naira is devalued, it means that the value of the Naira has decreased compared to other currencies, not that other currencies have become cheaper. In fact, it takes more Naira to buy the same amount of foreign currency, which means the other currencies have effectively become more expensive relative to the Naira.
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Option C: Goods that can be exported from Nigeria have become costlier
- Explanation: This statement is also incorrect. When the Naira is devalued, Nigerian goods become cheaper for foreign buyers because they can purchase more Naira for the same amount of their currency. For example, if a Nigerian product costs 100 Naira, and the exchange rate is 200 Naira per dollar, it costs $0.50 for a foreign buyer. If the Naira is devalued to 300 Naira per dollar, the same product now costs only $0.33 for the foreign buyer, making it more attractive for export.
Summary of Key Points:
- Devaluation of the Naira increases the cost of imports, making them more expensive for consumers and businesses.
- The value of the Naira decreases relative to other currencies, meaning it takes more Naira to buy foreign currency.
- Exports from Nigeria become cheaper for foreign buyers, potentially increasing demand for Nigerian goods abroad.
- Understanding currency valuation is crucial for comprehending international trade dynamics and their effects on the economy.