If you’ve ever traveled or done business overseas you’ve almost definitely done exchange rate in past times. Do you know that you may have your own foreign exchange bank a/c and change your money online at rates far better than your bank provides you with ?
Here we show you the best way to target an exchange rate for your foreign exchange as being a professional Currency trader, so that you will get the very best possible rate, so we take you through all of the basics you should know about currencies and dealer quotes.
When you first begin to handle foreign currencies a few of the terminology could be confusing, not forgetting the way all works, so let’s try to make it much clearer.
A currency is simply the kind of money which happens to be accepted as legal tender in almost any particular country. E.g. in america it’s the united states Dollar, in the united kingdom it’s the fantastic British Pound, and also in the 16 countries in the Euro Zone (e.g. France, Germany, Italy, Spain etc) it’s the Euro.
All of these currencies are “floating” against the other person from the international money markets and may rise and fall in value relative to one another, usually on account of events in international business.
Running a business terminology foreign exchange is known as Forex or FX for brief. Within the foreign currency exchange markets each currency is famous from a unique 3 letter abbreviation. Those that you will probably see usually would be the following;
USD Usa Dollar
EUR Euro
GBP Great British Pound
JPY Japanese Yen
CAD Canadian Dollar
AUD Australian Dollar
CHF Swiss Franc
SGD Singapore Dollar
NZD New Zealand Dollar
ZAR South African Rand
Foreign Currency rates (Changing money from one currency into another)
To begin with to comprehend how forex rates are quoted and what they mean, let’s begin with considering a foreign exchange transaction you will likely have done at some stage in your lifestyle.
Whenever you conduct a foreign exchange transaction (e.g. sending money for your folks back home) the dealer you conduct the transaction through will show the value of one currency against another expressed as a BUY rate within a 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 amount of digits appear after the decimal point. This simply allows for large transactions.
So, for example in case you are a UK tourist thinking of your holiday spending money for a visit to the united states these rate will simply mean for you that 1 GBP will buy you $1.65 (We’re looking purely on the foreign currency exchange rate here, and ignoring any fees the dealer may charge).
If you’re intending on doing a little serious spending on your journey towards the US the above exchange rate means that one thousand 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 within a currency pair is usually the base currency in this pair, i.e. the pair is showing exactly how much 1 unit of the base currency (GBP with this example) is worth within the other currency (the USD in such a case).
If on the return out of your visit to the US, you find that you didn’t have the ability to spend all your US dollars and still have $1,000 left which you need to convert back into GBP, the transaction congratulations, you wish to accomplish is to purchase GBP by Selling the USD.
So, so now you would ask your dealer for the USD/GBP buy exchange rate. i.e. for each and every 1 US dollar, the amount of British Pounds would you like to produce?
If you’re changing money in multiple currencies it’s easiest to think of all transactions regarding Buy rates as shown above.
Once you check out a foreign currency counter at the bank you are going to normally visit a display showing various exchange rates up against the domestic currency of the country in which your bank branch is situated. By way of example, in New York City a base currency table will demonstrate buy and then sell rates for those other currencies from the USD.
If a base currency table showed the rates to the JPY to get BUY 94.86 then sell 95.01 what this means is;
For every 1 USD you give you will buy 94.86 JPYs, and if you would like convert your JPYs back to USDs you just take advantage of the Sell rate, so for each 95.01 JPYs that you Target the dealer they may hand you back 1 USD.
Hopefully you may now discover why this table has been said to get the USD as its base currency, as the rates in the table all show the relationship from the foreign currency (within this example the JPY Japanese Yen) to 1 USD.
You may hopefully also find out how this table would actually just be useful for individuals that are merely ever buying and selling only the USD against other currencies.
For example, it would be of just limited use to say an Australian business woman who maybe wishes to sell Australian dollars (AUDs) in order to purchase goods in the united states 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 must pay her local staff in AUDs, and who would like to get some EUROs in her own pocket for her business trips to Europe !
In her own particular life she doesn’t genuinely have a single base currency, as she receives her income in Japanese Yens and Australian Dollars, and spends cash in AUDs, USDs and EURs.