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Achieving the best exchange rates possible can be difficult due to the foreign exchange market changing from minute to minute, 24 hours a day. It is necessary to maintain a balance between the import and export of a country because a deficit in the balance of payments leads to change in the rate of exchange. Apart from the hard core economical factors, political changes and international events equally plays an important role in the fluctuating exchange rates.
If direct quote is used and the national currency is appreciating against the foreign currency, the die as exchange rate number decreases, and vice versa if direct contribution and the national currency is used is depreciating against foreign currency the given number as exchange rate will increase.
By convention market since the early years 1980-2006 the exchange rate of most currency pairs were given to 4 decimal places for spot transactions and up to 6 decimal places for a fixed term or swaps. In transactions in the foreign exchange market retail exchange rate of a currency pair consists of two prices, the Bid price and the Ask price, one being the price at which the broker buys and another who sold. Fixed exchange rate: it is determined rigidly controlled by the Central Bank, normally the value of the national currency is fixed to a currency or basket of foreign currencies. Type of flexible or floating exchange rate: the value of the currency is determined by supply and demand in the currency market.
Nominal exchange rate: the set as relative value of one currency against another, that is, the relative value between a currency pair is expressed and is the price of buying and selling of different currencies. For instance, if the rate of interest is increased, foreign capital would flow in, which would raise the value of the currency in relation to other currencies.
If a country exhibits a tendency of lower inflation rate, the value of the currency increases, which automatically enhance the purchasing power.

The system of exchange rates among currencies stems from the need of foreign currency by companies and nationals.
Exchange rates are determined in the foreign exchange market, which is open to a wide range of different types of buyers and sellers continuously 24 hours a day, except weekends. As in any other market, the exchange rate is set by the forces of supply and demand which may arise from the need for foreign exchange or speculation.
An exception to this rule were the exchange rates with less than 1, which were given with 5 or 6 decimal places. As the weight an indicator of the volume of trade with each of the countries for which the bilateral real exchange rate is calculated is used. A low exchange rate makes domestic goods and services cheaper for foreigners and therefore favors exports and, conversely, for domestic products and imported consumer goods become more expensive. Similarly, lower interest rates would have just the opposite impact and the buyers would opt for currencies with higher interest rates. On the other hand, higher inflation rate acts in a negative manner because the decreasing currency value affects various sectors like high interest rate or declining trade leading to a fall in the exchange rate. The rate of exchange at which you have bought the money may not be same when you come back to your own homeland. In other words, the exchange rate comes from the movement of capital, goods, services and people across borders, that is, the existence of international trade. Although there is no fixed rule, exchange rates with a higher value were given to 20 usually with 3 decimals and higher rates to 80 were given to two decimal places.

But the question is why these exchange rates fluctuate.It is often stated that the shifting of the demand and supply results in such fluctuation.
This results in the decreasing currency demand because no one would like to earn low interest on their deposits, which finally leads to declining exchange rates. Hence, the currency value depreciates which further adds fluctuation in the exchange rates.
Hence, at the time of returning the unused money, you may get a low rate of return, which is definitely a loss on your part. The economic health of a country depends on many factors and exchange rate is one of the important determinants.Here are the reasons behind the shift that forces exchange rate to move.
The best thing about this card is the fixed exchange rate, that is to say,at the time of retuning the unused currency the FOREX service provider would follow the original exchange rate. However, if you are planning to transfer money or make any international payments, the fluctuating exchange rate is bound to affect you anyway. Tell your foreign exchange firm the rate you want to trade at and it will make the deal when the exchange rate hits your target rate. Or if you need to transfer money within the next ten working days, you can take a spot contract, which allows you to fix an exchange rate for the coming days and apply it immediately.

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28.09.2015 | Author: admin

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