Whether you are planning to travel abroad any time soon or simply are interested in getting to knowing the latest trends and rates of the Currency Exchange market, it is a good to learn the basics beforehand.
Here you can find all relevant information as to what it is and what is the need to know about it. Let’s get started without any further delay.
What is foreign exchange (forex)?
Foreign exchange refers to the relative exchange rates of various foreign currencies of the world. To keep it simple various currencies are expressed in terms of one selected currency. This way it is possible to make comparisons among value of products and services in various other currencies in the world. Currently, the world uses US dollar as the constant currency for forex comparisons and exchanges. In simple words, the forex answers questions such as “How many euros are equivalent to 1 US dollar at some point of time?”
Forex rates fluctuate constantly
There are various complex factors that affect the foreign currency exchange in Delhi rates in the world. It could be economic boom or fall in parts of the world or simply recession and such. There are other relevant economic as well as social factors to this cause but the point that is important is that the forex rates constantly fluctuate. Though the rates do not change dramatically overnight until and unless something big and unexpected happens in the world. For your purpose you should always regularly check the rates to establish a current trend of the interested currencies. There are various forex information websites that can you give every minute rates accurately and all for free. You can even use these sites to get a monthly or yearly estimate or average for the forex rate of particular currency in particular period of time.
What are spot and nominal exchange rates?
The exchange rate people usually talk about or discuss is the nominal exchange rate but it isn’t the one that you get on information websites or the ones any financial institution uses while dealing with foreign currency exchange. Confusing? Let’s explain this a bit more.
There are two types of exchange rates: Nominal and spot exchange rate. Spot exchange rate are the actual exchange rate for the currencies in the market but when a little mark-up value is added to it to cover profits and related expenses it becomes nominal exchange rates. So, as you see, spot exchange rates are the ones that will be used by the financial institutions and foreign money exchanger while the ones that consumers or tourists need to know is the nominal exchange rates. The point behind knowing both of the rates is that when you know the difference in these exchanges rate systems, you will be able to judge whether you’re getting a good deal or not at the money exchanger. Having a good knowledge of the rates can save your from getting ripped off.
How things are labelled for exchange rates
If you are lucky enough while dealing with international dealings, you can get a crisp and clear labeling which clearly defines the followed exchange rate such as 1 EUR= 1.2 USD. It means that one euro would be equal to the value of 1.2 US dollars. Though generally would not find such labeling as there is another shorter way which is: EUR/USD= 1.2 which means the same thing but in a shorter way.
Now, that you have a clearer understanding of foreign currency exchange you will be able to get a better deal while exchanging your money or making purchases. Good luck!
