Dealing with money can be a complicated thing. Especially if you are sending money online, it is tricky to understand the concept and working of international money rates. This is due to the fact that most of the individuals are unaware of certain terms as well as phrases that might be linked to the foreign money transfer process.
If you wish to send money internationally, then you must realize the meaning and importance of the exchange rates offered by the banks and other leading money transfer companies. The exchange rates tell you about the worth of your currency in some foreign currency. You can consider the same as the price that is charged for purchasing the particular foreign currency. Usually, the foreign exchange bodies and traders decide upon the exchange rates for most of the currency.
The prices change for the currencies used by major countries like America, Canada, Japan, Europe, Britain and so more. These countries make use of the flexible exchange rates. You must plan out the exact exchange rate values when you are traveling overseas or even sending money abroad. When the US dollar tends to be strong, you can purchase more foreign currency. On the other hand, when the US dollar is weak, it limits the purchasing of the foreign currency.
What Factors Affect the Exchange Rates?
The demand for the currency of a particular country depends on the current situations in the country. Firstly, the rate of interest paid by the central bank of the specific country tends to be a big determining factor.
The higher the rate of interest is, it makes the currency more valuable. The investors tend to exchange the currency for a higher-paying one. They would then save the same in the bank of the country for receiving higher rates of interest.
Secondly, the money supply created by the central bank of a particular country also determines the exchange rate. If the government is printing too much currency, then there is more chasing of fewer goods. The currency holders would bid up the prices of goods and services. This would, as a result, lead to inflation.
Thirdly, the financial stability and economic growth of a particular country also play a determining role in the exchange rate. If the country has a strong & growing economy, then the investors will buy the goods & services. For this, they would need more currency.
Exchange Rates Fluctuations
The exchange rates tend to float quite freely against one another. This implies that they are under constant fluctuation. The currency valuations get determined by the flow of currency in & out of a particular country. A high demand for a certain currency implies that the value of the particular currency would rise. The demand for a particular currency is determined by factors like tourism, speculation, international trade, mergers & acquisitions, the concept of safety with respect to geo-political threats and so more.
For example, if a Japanese company would sell products to some company in the United States and the particular US-based company might have to convert dollars into Yen of Japanese currency for paying the goods, then the flow of dollars into yen might indicate a great demand for the Yen. If the overall currency flow has led to the net demand for the Yen, then the Japanese Yen will increase in its value.
While you are doing any transactions with international money –whether traveling abroad or transferring money overseas, it is imperative to understand the overall concept of exchange rates. This would help you get the best value for your money.