Currency pairs and direction
Currency pairs
Every protection contract is written on a currency pair, such as USD/NGN. The rate is the number of units of the second currency that one unit of the first buys. At a USD/NGN rate of 1,330, one US dollar costs 1,330 naira.
- When the rate rises, the second currency has weakened: a dollar costs more naira.
- When the rate falls, the second currency has strengthened.
All pairs on BlockFinaX are quoted against the US dollar. See Supported markets for the current list.
Exposure direction
Your exposure is the way a rate move hurts you. Two contracts are available on each pair, named after the move they pay for: an Up cover pays if the rate rises, a Down cover if it falls. Buyers and underwriters use the same names.
| Your situation | The move that hurts you | Contract to buy |
|---|---|---|
| You have US dollars to pay (an import invoice, a loan repayment) | Your currency weakens; the rate rises | Up cover, for example USD/NGN Up cover |
| You will receive US dollars (an export payment) | Your currency strengthens; the rate falls | Down cover, for example USD/NGN Down cover |
Each pool sells one contract only. A USD/NGN Up cover pool and a USD/NGN Down cover pool are separate pools with separate underwriters.
Example
A Lagos importer must pay a US supplier 10,000 dollars in 30 days. Today that costs 13.3 million naira at 1,330. If the rate reaches 1,420, the same invoice costs 14.2 million naira. A USD/NGN Up cover pays the importer in USDC if the rate settles above the strike they chose, which offsets the extra cost.