Exchange rates allow you to know how much your currency is worth in a foreign country. It’s more like the price being charged for a certain currency.
Exchange rates float against one another due to trade movement, capital movement, stock exchange operations, banking operations, and political conditions. Currency fluctuation is a common outcome of floating exchange rates.
Causes of Fluctuation Of exchange Rates
Any change that happens in a country’s imports or exports can cause a change in the exchange rate. When a country’s exports exceed its imports, the demand for the domestic currency will increase, which will move the exchange rate in favor of the country.
However, when the imports are more than the exports, the demand for the foreign currency rises; therefore, the exchange rate will be against the country.
Any movement of capital from one country to another can have an impact on the exchange rate.
Stock Exchange Operations
Granting loans, purchase, and sale of foreign securities can increase the demand for foreign currencies. Payment of interest on foreign loans can also be a factor in increasing the demand for foreign currencies, which may move the rates of exchange; For example in Norway, the country could give a loan for a foreign nation.
This will affect the demand for foreign currency, and the exchange rate moves unfavorably for Norway. However, once the foreign country repays the loan, the demand for Norway’s currency increases, and the rate of exchange moves in favor of Norway.
When it comes to foreign exchange, banks are the main dealers. They are the ones responsible for selling drafts, transfer funds, and accept foreign bills of exchange. All these bank operations can affect a country’s exchange rate.
When a country has political stability, this could maintain a high exchange rate. Political stability affects the exchange rates because it could attract foreign capital, which increases the country’s exchange rate.
How to convert Currencies?
Before converting currencies, you should first look up the exchange rates, either by contacting your bank or an online exchange rate calculator. You might find slight changes in rates between banks and the online rate. And that’s mainly because banks earn small profits from exchanging currencies. However, the online exchange rate calculator will show you the common between all banks.
Once you know the exact exchange rate, you can convert currencies using a trusted and reliable online currency exchange, or it could be done manually.
The exchange rate is how much it costs to change one currency to another, and it fluctuates continuously due to several factors. These fluctuations could push the currency up and down throughout the weeks.
If you’re traveling and you want to change currencies, you should use the right tools in order to know the exact exchange rate and use a trusted method to convert it.
And before exchanging currencies, you should monitor the market and see if today’s rate is better than any other day or not. That way you could save a lot of money.