Exchange Rates

Exchange rates today can fluctuate next week or next year to such an extent that it could make a massive difference to what you can afford – and where.

If you want your holiday money to go further, choosing the right country based on their currency rates could make all the difference. Exchange rates are influencing factors in whether you decide to invest in a property abroad, retire abroad, do business abroad, or of course, go on holiday.

Despite the fact currency rates can impact drastically on how much money you’ll have to spend on your hotel, excursions and dining out, it’s surprising how little the British public are clued up about foreign currency exchange rates. So much so, that a recent report found that British holidaymakers returned with ?1.78bn of unspent foreign money in 2009.

Going on holiday seems to encourage a holiday mentality when it comes to foreign cash. It’s as if because some foreign currency doesn’t look like British money it’s somehow like Monopoly money. And if exchange rates need to be calculated, some holidaymakers simply give up. It’s easy to end up being clueless about how much money you are actually spending. The fact that about 71% of travellers return with a staggering amount of foreign currency represents a vast amount of money. Although some covert their cash back to sterling and others donate it to charity, 3% don’t do anything with it – amounting to a massive ?29.8 million going to waste.

If you want your money to go further, you need to get clued up about the country you are visiting and their economy. Today, destinations such as Egypt, Jamaica and Dubai are at the top of the best travel destinations for Brits who want to take advantage of great exchange rates today. Also, Bulgaria, Hungary and Thailand are the cheapest destinations when it comes to value, with a basket of holiday necessities costing significantly cheaper (less than ?40) compared to the same goods in France (costing ?71.12).

By: Ann Chadwick

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If you are intending on investing your hard earned money in the Forex market then you need to know what causes the exchange rates of foreign currencies to increase (appreciate) and decrease (depreciate). Some of these reasons include high interest rates, a drop in inflation and speculation but there are dozens of other highly complex reasons that should also be explored. What follows are just some of the more obvious reasons why foreign currencies appreciate in value.

When foreign currency exchange rates appreciate in value it is as a result of a variety of factors. It has a huge impact on the market and can cause either celebrations or commiserations for Forex traders. Although every independent nation has a currency, the idea of trading them off against one another has only happened in the modern era. It is a multi-trillion dollar industry which is as volatile as plastic explosives but if it goes off it can cause far more damage economically speaking. If a trader has dollars, euros or yen they are eager to see it go up in value as this will enable them to gobble up other currencies that have grown weak against it.

High interest rates are one factor that could result in a currency appreciating in value. For example, if the United States’ interest rates rose it would result in a major influx in investment because these clearly higher rates equal better savings. This would cause an increase in demand for dollars so that foreign investors could take advantage of the favorable interest rates. Basic economics dictates that when demand outweighs supply in any product its price is certain to increase and this is no different when it comes to exchange rates on foreign currencies.

As any trader will tell you, it’s not about what news you receive it’s about how you receive it. Theoretically speaking at least, if an event that could have a cataclysmic effect on the world’s currency markets was reported and traders didn’t bat an eyelid, then the market would not be greatly altered. Of course what would really happen would be mass panic. Speculating on exchange rates is what drives the entire market. If a trader has inside information about a currency that may go up in the future they will act now to get ahead of everyone else. News has a habit of filtering out so as a result there will be a lot of activity amongst traders which will inevitably lead to market change.

A nation’s inflation is also a critical component when it comes to exchange rates appreciating in value. A country with a low inflation rate will obviously be a good place to buy imports from. This will lead to a higher demand for goods, services and currency which will cause it to rise in value.

If you trade on the Forex market then you will need to become acquainted with the myriad of reasons why a currency will depreciate and appreciate in value. If you don’t have at least this rudimentary grasp of the market then you are likely to be left behind as more knowledgeable traders prosper.

By: Maureen Holland

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International currency exchange rates are a mechanism for determining the relative value of one currency against another. Rates are set by the forces of supply and demand. Market participants negotiate an agreed value at which the exchange takes place. There is no one centralized market place for exchange rates but the majority of transactions occur on the Interbank market between the participants who negotiate the agreed price. Exchange rates are essential for maintaining a workable framework for all matters of international trade and commerce. This article will examine the role of exchange rates and how they can influence economic and planning decisions.

Currency exchange rates affect foreign trade. International exchange rates allow countries to determine the relative cost of goods for sale. When one countries exchange rate rises or falls against another, it can create a shift in the way trade and commerce is conducted. Manufacturers and exporters price the cost of their goods in their base unit of currency. If the exchange rate appreciates to a considerable extent then it makes the cost of goods more expensive to the foreign purchaser. This can result in a reallocation of resources as demand for the goods shift to a comparatively cheaper supplier.

Central banks are responsible for monetary policy that can influence exchange rates. The economic conditions affecting a country also have an effect on the supply and demand for the currency because they influence current and future expectations. In general, Central Banks are charged with the role of providing price and currency stability. An unstable exchange rate or the presence of inflation can cause a distortion in economic planning that can impact a country adversely. Central banks sometimes intervene in currency markets to enforce their current economic mandates or to protect a currency from excess currency speculation. The Thai government’s role in 2006 is a memorable example of how central bank policy can impact the exchange rate and interconnected equity markets.

The danger for a country whose exchange rate appreciates too quickly is that it can harm domestic exports by making them comparatively expensive. Imports, on the other hand, become cheaper. Domestic producers can come under threat if favorable exchange rates allow foreign countries to dump their goods at much cheaper prices, thereby putting domestic producers out of business. A recent example of this is the argument by western governments that the Chinese exchange rate is undervalued relative to the rest of the world. The huge trade surplus amassed by China in recent years is testimony to the effect that a low exchange rate can have on export based industries. Many US based corporations have been put out of business or have had to open manufacturing plants offshore in order to compete. Of course, relative labor rates also play a large part in the pricing differential and planning decisions.

The currency markets require careful consideration of the economic variables that affect the country as well as global considerations. In general, currencies tend to trend in the direction of the economic fundamentals. Short term gyrations in international money exchange rates are also influenced by the conditions affecting worldwide equity markets and decisions by central banks that alter interest rate differentials.

By: Andrew Winthorp

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