Whether we are converting from aud to nz or aud to usd, it is useful to know something about exchange rates to better understand just what value we are receiving for our money from the exchange. Where one country loses, another will gain. This is not the country gaining, though, it is the person or business trading the currency for whatever reason. It might be a currency trader, a business trading abroad, or a holidaymaker. The state of the economy in their particular country will dictate the currency rate they receive.
So, go on a journey with us now to find out just what you should know about currency rates before making that exchange.
How a Currency Rate is Worked Out
Currency rates are worked out using either a floating or fixed rate. The floating rates will be decided by the supply and demand in terms of global currency markets. In other words, where there is a high demand for a currency its value will increase. This means that those in a country where their currency is not in demand because of the state of its economy, or confidence in its economy, will fare worse when looking for financially beneficial currency exchanges.
Factors Influencing a Currency Rate
So, the supply and demand in respect of a currency is the main factor determining its exchange rate. Sub factors, which contribute to supply and demand, will include any economic announcements about a country. Things like interest rate changes, inflation reports, a country’s unemployment rates, and information about its GDP (gross domestic product), as well as its trading in commodities and manufacturing data, all affect currency rates.
Traders of currencies will keep an eye on all these contributory factors daily, but holidaymakers can only lessen the potential lack of value for money in their spending money by either exchanging their currency well in advance of their holiday (when times look good for their country) or by spreading out their exchanges. This will be a damage limitation when a currency is volatile or a less favourable exchange rate is predicted soon.
The Places to Exchange Currencies
No longer do we need to visit a bank or currency exchange bureau on the high street, we can now exchange currency online and 24/7. We can wait for the right real-time rate, which is favourable to our country, and therefore us, to do this.
Online, we can easily compare currency exchange rates and look back at historical data and make comparisons. We can look out for headlines from financial news providers that might mean we should exchange currency sooner rather than later. We can meticulously watch and plot the foreign currency trends well in advance of a holiday and invest in the currency that we need earlier if it seems prudent.
Cash Versus Credit Card
This is a consideration for holidaymakers and businesspeople who will spend money in foreign countries.
If we exchange our currency for cash then we can control how much it is worth at the time we exchange it, but if we leave it to pay with our credit card in our destination country, then we will have to stand whatever the exchange rate is at the time of paying.
It is all about taking control when you pay in cash. A cautionary note, though, is not to carry too much cash with you while on holiday to make it a security risk. It is about striking a balance so that you can pay for anything you need to. You cannot assume that your credit card will be accepted everywhere.
Bank accounts that cater for foreign currencies can allow money to sit in your account in a certain currency, making online foreign exchanges easier.
So, when we are exchanging currency, we ought to know that currency rates are most likely calculated based on how much in demand a particular country’s currency is. You get a better deal if your country has a better economy. The factors influencing supply and demand for a currency should be known. These are factors that affect an economy. As far as exchanging currency these days, online providers and online banking facilities have made it easier. Also beneficial is the fact that you can exchange in real-time and so achieve the very best rates on the day.