If you’ve ever traveled or done business overseas you’ve almost certainly done currency transfers in the past. Do you know that you might have your own personal foreign exchange bank a/c and change your cash online at rates a lot better than your bank will give you ?
Here we explain to you the way to target an exchange rate for the forex similar to a professional Trader, so that you get the very best possible rate, so we help you get through each of the basics you must know about currencies and dealer quotes.
When you begin to manage foreign currencies some of the terminology might be confusing, in addition to the actual way it all works, so let’s try so it will be much clearer.
A currency is the sort of money which happens to be accepted as legal tender in every particular country. E.g. in the states it’s america Dollar, throughout the uk it’s the excellent British Pound, and in the 16 countries from the Euro Zone (e.g. France, Germany, Italy, Spain etc) it’s the Euro.
Every one of these currencies are “floating” against one another from the international money markets and definately will rise and fall in value relative to one another, usually due to events in international business.
In business terminology forex is known as Forex or FX in short. Inside the currency exchange markets each currency is well known with a unique 3 letter abbreviation. Those which you will probably see usually are the following;
USD United States Dollar
GBP Great British Pound
JPY Japanese Yen
CAD Canadian Dollar
AUD Australian Dollar
CHF Swiss Franc
SGD Singapore Dollar
NZD Nz Dollar
ZAR South African Rand
Forex Trading rates (Changing money from a currency into another)
To get started to learn how foreign currency rates are quoted and anything they mean, let’s start with looking at a foreign exchange transaction you will likely have done sooner or later in your daily life.
When you conduct an overseas exchange transaction (e.g. sending money to the folks home) the dealer you conduct the transaction through can have the value of one currency against another expressed like a BUY rate inside 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 right after the decimal point. This simply enables substantial transactions.
So, as an example when you are a UK tourist considering your holiday spending money for a vacation to america the above mentioned rate will just mean to you personally that 1 GBP will buy you $1.65 (We’re looking purely in the foreign currency exchange rate here, and ignoring any fees the dealer may charge).
If you’re thinking about doing some serious spending on your journey towards the US the above exchange rate means that one thousand GBP will buy you $1,654.30
Hopefully that’s fairly easy to understand. So, here you’ve been capable of seeing that this first currency shown within a currency pair is usually the base currency because pair, i.e. the pair is showing exactly how much 1 unit of your base currency (GBP in this particular example) is worth within the other currency (the USD in such a case).
If on your return from your journey to the united states, you discover that you didn’t have the ability to spend your entire US dollars and have $1,000 left which you want to convert back into GBP, the transaction you want to do is to purchase GBP by Selling the USD.
So, now you would ask your dealer to get a USD/GBP buy exchange rate. i.e. for every single 1 US dollar, how many British Pounds are you going to supply?
If you’re changing funds in multiple currencies it’s easiest to come up with all transactions with regards to Buy rates as shown above.
Whenever you check out a forex counter at a bank you will normally view a display showing various exchange rates up against the domestic currency of the country by which your bank branch is located. As an example, in New York a base currency table will show buy and then sell on rates for all those other currencies from the USD.
If a base currency table showed the rates to the JPY to be BUY 94.86 and SELL 95.01 this implies;
For every 1 USD you give you are going to buy 94.86 JPYs, and if you wish to convert your JPYs back into USDs you just use the Sell rate, so for every 95.01 JPYs that you SELL to the dealer they may hand you back 1 USD.
Hopefully now you can understand why this table is said to offer the USD as the base currency, because the rates around the table all show the connection of your foreign exchange (in this particular example the JPY Japanese Yen) to 1 USD.
You can hopefully also find out how this table would really simply be useful for those who are just ever selling and buying merely the USD against other currencies.
By way of example, it could be of just limited use to state an Australian business woman who maybe wants to sell Australian dollars (AUDs) so that you can purchase goods in the usa with USDs, but who receives payment for 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 wishes to possess some EUROs in their pocket on her business trips to Europe !
In the particular life she doesn’t actually have one single base currency, as she receives her income in Japanese Yens and Australian Dollars, and spends funds in AUDs, USDs and EURs.