If you’ve ever traveled or done business overseas you’ve almost certainly done currency exchange before. Did you know that you could have your personal foreign currency bank a/c and change your hard earned money online at rates much better than your bank will provide you with ?
Here we demonstrate the best way to target an exchange rate for the forex similar to a professional Trader, so that you obtain the best possible rate, so we get you through all of the basics you should know about currencies and dealer quotes.
When you begin to manage foreign currencies some of the terminology could be confusing, not forgetting the way all works, so let’s try to make it much clearer.
A currency is the sort of money that is accepted as legal tender in almost any particular country. E.g. in the United States it’s the usa Dollar, throughout the uk it’s the excellent British Pound, and also in the 16 countries of the Euro Zone (e.g. France, Germany, Italy, Spain etc) it’s the Euro.
Many of these currencies are “floating” against one another within the international money markets and can rise and fall in value relative to one another, usually on account of events in international business.
Running a business terminology foreign currency is named Forex or FX for short. From the currency exchange markets each currency is well known with a unique 3 letter abbreviation. Those that you are likely to see usually would be the following;
USD U . S . Dollar
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
Forex rates (Changing money from one currency into another)
To start to know how foreign currency rates are quoted and the things they mean, let’s begin by looking at a currency exchange transaction you will probably have done at some stage in your way of life.
Whenever you conduct an overseas exchange transaction (e.g. sending money to your folks back home) the dealer you conduct the transaction through will demonstrate value of one currency against another expressed as being a BUY rate in a currency pair.
E.g. GBP/USD 1.6543. This exchange rate ensures that 1 GBP (British pound) will buy $1.6543
Don’t be confused by the amount of digits appear following the decimal point. This simply allows for substantial transactions.
So, for example in case you are a UK tourist thinking about your holiday spending money for a visit to america the aforementioned rate only will mean for your needs that 1 GBP will buy you $1.65 (We’re looking purely with the foreign exchange rate here, and ignoring any fees the dealer may charge).
If you’re considering doing a bit of serious shelling out for your journey towards the US the aforementioned exchange rate means that 1,000 GBP will buy you $1,654.30
Hopefully that’s fairly easy to understand. So, here you’ve been capable of seeing the first currency shown in a currency pair is always the base currency in that pair, i.e. the pair is showing simply how much 1 unit of the base currency (GBP in this example) may be worth inside the other currency (the USD in this case).
If on your return through your journey to the united states, you find that you didn’t find a way to spend your entire US dollars and still have $1,000 left which you need to convert directly into GBP, the transaction congratulations, you need to do is to Buy GBP by Selling the USD.
So, so now you would ask your dealer for any USD/GBP buy exchange rate. i.e. for every 1 US dollar, the amount of British Pounds do you want to give me?
If you’re changing cash in multiple currencies it’s easiest to come up with all transactions when it comes to Buy rates as shown above.
Whenever you go to the foreign exchange counter with a bank you can expect to normally view a display showing various exchange rates against the domestic currency of the country by which your bank branch is found. By way of example, in The Big Apple a base currency table will demonstrate buy and then sell on rates for many other currencies from the USD.
When a base currency table showed the rates for the JPY to get BUY 94.86 then sell 95.01 what this means is;
For each 1 USD you give you are going to buy 94.86 JPYs, and if you would like convert your JPYs back to USDs you merely make use of the Sell rate, so for each 95.01 JPYs that you just Target the dealer they are going to hand you back 1 USD.
Hopefully you can now see why this table has been said to achieve the USD as its base currency, as the rates on the table all show the relationship from the foreign currency (within this example the JPY Japanese Yen) to 1 USD.
It is possible to hopefully also discover how this table would actually just be useful for individuals that are simply ever selling and buying just the USD against other currencies.
For example, it would be of only limited use to express an Australian business woman who maybe wants to sell Australian dollars (AUDs) so that you can purchase goods in the US with USDs, but who receives payment on her services to her Japanese clients in JPYs, and from her local clients in AUDs, and who should pay her local staff in AUDs, and who wants to have some EUROs in her pocket for her business trips to Europe !
In her own particular life she doesn’t have one base currency, as she receives her income in Japanese Yens and Australian Dollars, and spends profit AUDs, USDs and EURs.