05_Epi_$...How Exchange rates works? ...$

Hello Listeners

Welcome to the 5th episode of our podcast

I hope you all listened to our previous episode if not please do listen to episode 4 is all about PPP (Purchasing Power Parity).

Moving into our today's episode

We will discuss

How does Exchange Rate work?

Before moving onto the topic everyone might be interested in knowing how does the Exchange rates work right?

Transferring money abroad and exchanging currency only when traveling and these regular users

transfer money abroad regularly might find its very hard to understand. So we come up with the solution to educated how this is going to work?

So here we are!

In this Finance world, an exchange rate is an amount that one currency is worth when compared to another country's currency by this each country carries its currency rates.

In other words, the exchange rate tells you the number of units of one currency that you will receive for one unit of another currency.

For better understanding we will take a small example here:

How many Indian Rupees will get if you are going 1 US dollar?

Exchange rates never standstill. They are forever fluctuating in response to economic and political changes and developments as they occur around the world.

The only time that most of us deal with them directly is when it comes to traveling or sending money overseas.

However, exchange rates indirectly impact many different areas of your day-to-day life - from the cost of your groceries and fuel to the job opportunities and the interest rate on your loans.

Now we will go little inside exchange currency

These rates are determined in the foreign exchange market which is open to a wide range of different types of buyers and sellers

In the retail currency exchange market, different buying and selling rates will be quoted by money dealers. Most trades are to or from the local currency. The buying rate is the rate at which money dealers will buy foreign currency, and the selling rate is the rate at which they will sell that currency. The quoted rates will incorporate an allowance for a dealer's margin (or profit) in trading, or else the margin may be recovered in the form of a commission or in some other way.

What is better - High or Low exchange rates?

A higher rate is better if you’re buying or sending currency, as it means you get more currency for your money. A lower rate is better if you’re selling the currency. This way, you can profit from the lower exchange rate.

Here we need to understand one thing we have 2 different types of currencies

1. Variable Currency
2. Fixed Currency

There is a market convention that determines which is the fixed currency and which is the variable currency.

For example, in a conversion from EUR to AUD, EUR is the fixed currency, AUD is the variable currency and the exchange rate indicates how many Australian dollars would be paid or received for 1 Euro

What is Forex?

FOREX (foreign exchange market or FX), is a global market for currency trading used by individuals, businesses, and banks. If you make a transaction that requires a currency conversion, FOREX determines how much value you get for your money.

A big part of the foreign exchange happens for practical purposes - for example when you're traveling or buying foreign goods. However, a majority of currency conversion is made to earn a profit.

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Sivakrishna