If you’ve ever traveled or done business overseas you’ve certainly done world wide exchange before. Do you know that you may have your own foreign exchange bank a/c and change your money online at rates much better than your bank gives you ?
Here we demonstrate the way to target an exchange rate for the foreign exchange similar to a professional Fx trader, so you obtain the best possible rate, therefore we require through each of the basics you need to know about currencies and dealer quotes.
When you initially begin to manage foreign currencies some of the terminology may be confusing, not to mention the way it all works, so let’s try to make it much clearer.
A currency is the type of money which is accepted as legal tender in almost any particular country. E.g. in the states it’s the usa Dollar, in the united kingdom it’s the excellent British Pound, and then in the 16 countries in the Euro Zone (e.g. France, Germany, Italy, Spain etc) it’s the Euro.
Every one of these currencies are “floating” against the other person in the international money markets and definately will rise and fall in value relative to one another, usually as a result of events in international business.
In running a business terminology foreign currency is referred to as Forex or FX for short. Within the currency exchange markets each currency is recognized by way of a unique 3 letter abbreviation. Those that you will likely see generally are the following;
USD Usa Dollar
GBP Great British Pound
JPY Japanese Yen
CAD Canadian Dollar
AUD Australian Dollar
CHF Swiss Franc
SGD Singapore Dollar
NZD Nz Dollar
ZAR South African Rand
Foreign Exchange rates (Changing money from a single currency into another)
To begin to understand how foreign exchange rates are quoted and anything they mean, let’s begin with checking out a foreign currency exchange transaction you will probably have done at some point in your daily life.
When you conduct a foreign exchange transaction (e.g. sending money to your folks back home) the dealer you conduct the transaction through will demonstrate the value of one currency against another expressed like a BUY rate in the currency pair.
E.g. GBP/USD 1.6543. This exchange rate signifies that 1 GBP (British pound) will buy $1.6543
Don’t be confused by the number of digits appear after the decimal point. This simply allows for substantial transactions.
So, as an example when you are a UK tourist considering your holiday spending money for a vacation to the usa the above mentioned rate will simply mean for you that 1 GBP will buy you $1.65 (We’re looking purely in the foreign exchange rate here, and ignoring any fees the dealer may charge).
If you’re thinking about doing a bit of serious spending on your holiday on the US the aforementioned exchange rate ensures that 1,000 GBP will buy you $1,654.30
Hopefully that’s fairly clear to understand. So, here you’ve been able to see the first currency shown in the currency pair is definitely the base currency in this pair, i.e. the pair is showing exactly how much 1 unit from the base currency (GBP with this example) is definitely worth inside the other currency (the USD in this case).
If in your return from the escape to the US, you find that you didn’t have the ability to spend your US dollars and still have $one thousand left which you wish to convert directly into GBP, the transaction at this point you want to do is to find GBP by Selling the USD.
So, now you would ask your dealer for a USD/GBP buy exchange rate. i.e. for each 1 US dollar, how many British Pounds are you going to give me?
If you’re changing money in multiple currencies it’s easiest to come up with all transactions regarding Buy rates as shown above.
Once you visit a foreign currency counter at the bank you will normally visit a display showing various exchange rates up against the domestic currency of the country where your bank branch is found. By way of example, in Ny basics currency table shows buy and sell rates for many other currencies up against the USD.
If your base currency table showed the rates to the JPY to get BUY 94.86 and SELL 95.01 this implies;
For every single 1 USD you hand over you will buy 94.86 JPYs, and if you would like convert your JPYs back to USDs you simply use the Sell rate, so for every 95.01 JPYs that you Target the dealer they are going to hand you back 1 USD.
Hopefully you may now discover why this table has been said to get the USD as the base currency, as the rates in the table all show the partnership from the foreign currency (in this particular example the JPY Japanese Yen) to 1 USD.
You can hopefully also see how this table would really just be useful for people who are only ever buying and selling just the USD against other currencies.
By way of example, it would be of only limited use to mention an Australian business woman who maybe wishes to sell Australian dollars (AUDs) as a way to purchase goods in the usa with USDs, but who receives payment on her behalf services to her Japanese clients in JPYs, and from her local clients in AUDs, and who needs to pay her local staff in AUDs, and who wants to get some EUROs in her own pocket on her behalf business trips to Europe !
In her particular life she doesn’t actually have one single base currency, as she receives her income in Japanese Yens and Australian Dollars, and spends money in AUDs, USDs and EURs.