You need to consider several factors if you are planning a trip abroad, and one of these is the exchange rate of your local currency to the currency of the country you will be visiting. This is important so that you can plan your trip budget accordingly. Additionally, you can get the best currency conversion deal if you research about the exchange rate before your planned trip.
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Foreign Exchange Rate
A foreign exchange rate determines the amount of one currency when converted to another currency. Typically, currency rates are based on the US dollar such that the exchange rate is sometimes defined as the amount of local currency, such as Peso, Euro, and Baht, which is equivalent to a US dollar. There are already online currency converter applications that you can use to check how much your planned travel money is worth in another country. Again, it is recommended that you do verify the exchange rate beforehand to save you the trouble of either overspending or not having enough money for your trip.
Types of Exchange Rate
The exchange rates we usually see in airports or terminals are flexible exchange rates. These are flexible because the rates vary from day-to-day, depending on various economic factors. The rise and fall in the rates are often determined and regulated by the foreign exchange market.
Another type of exchange rate is the fixed exchange rate, but these are only utilized in certain countries such as Cuba. With a fixed exchange rate, the country has full control on dictating the value of their currency versus the currency of other countries.
Factors that Affect Exchange Rates
Typically, the overall situation in a certain country has an impact on their exchange rate. A fluctuating exchange rate can be observed in countries under conflict, while a more stable exchange rate can be noted in countries with a healthy economic status. Nonetheless, below are the key factors that affect a country’s exchange rate:
- Interest Rate. A higher interest rate paid a nation’s central bank makes that nation’s currency more valuable.
- Money Supply. This still follows the law of supply and demand wherein if there is too much supply, with a low demand, then the product cost is low. Hence, if a country prints a significant number of their currency, with only a few products circulating the market, then the exchange rate trend will tend to slope down.
- Economic Growth. A country’s financial stability has a direct impact on their exchange rate. With a healthy economic growth, more investors will be willing to put up businesses in a certain country, attracting a rise in the exchange rate.
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Overall, you can get the best value for your money during your travels if you know all about exchange rates. It is recommended to convert your money in banks or ATMs rather than in the street or airport kiosks because the rate that banks offer are usually standard and regulated, with minimal fluctuation. Hence, you will get your money’s true value, without the hidden fees.