If you’ve ever traveled or done business overseas you’ve more than likely done world wide exchange previously. Do you know that you might have your own foreign exchange bank a/c and change your cash online at rates far better than your bank gives you ?
Here we explain to you how to target an exchange rate to your foreign exchange similar to a professional Fx trader, so you get the best possible rate, and that we require through all of the basics you have to know about currencies and dealer quotes.
When you first begin to manage foreign currencies a number of the terminology might be confusing, along with the way all works, so let’s try to really make it much clearer.
A currency is just the sort of money which happens to be accepted as legal tender in any particular country. E.g. in the usa it’s america Dollar, in the UK it’s the Great British Pound, as well as in the 16 countries in the Euro Zone (e.g. France, Germany, Italy, Spain etc) it’s the Euro.
All 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 because of events in international business.
Running a business terminology forex is named Forex or FX in short. In the foreign exchange markets each currency is known from a unique 3 letter abbreviation. Those which you are likely to see generally would be the following;
USD Usa 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 Trading rates (Changing money in one currency into another)
To begin to know how foreign currency rates are quoted and anything they mean, let’s start with checking out a currency exchange transaction you will probably have done at some stage in your life.
Whenever you conduct an overseas exchange transaction (e.g. sending money for your folks back home) the dealer you conduct the transaction through will show the value of one currency against another expressed as being a BUY rate in the 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 huge transactions.
So, by way of example if you are a UK tourist thinking about your holiday spending money for a trip to the US the aforementioned rate only will mean to you personally that 1 GBP will buy you $1.65 (We’re looking purely with the foreign currency exchange rate here, and ignoring any fees the dealer may charge).
If you’re planning on performing some serious spending on your journey on the US the above mentioned exchange rate ensures that one thousand GBP will buy you $1,654.30
Hopefully that’s fairly clear to understand. So, here you’ve been capable of seeing the first currency shown in the currency pair is usually the base currency in this pair, i.e. the pair is showing just how much 1 unit in the base currency (GBP within this example) is definitely worth in the other currency (the USD in cases like this).
If on your own return through your journey to the usa, you discover that you didn’t have the ability to spend all your US dollars and have $1,000 left which you want to convert back to GBP, the transaction at this point you wish to accomplish is to find GBP by Selling the USD.
So, so you would ask your dealer for any USD/GBP buy exchange rate. i.e. for every 1 US dollar, just how many British Pounds are you going to deliver?
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.
When you go to a forex trading counter at the bank you may normally visit a display showing various exchange rates versus the domestic currency of the country in which your bank branch is positioned. By way of example, in Ny basics currency table shows buy then sell rates for many other currencies versus the USD.
When a base currency table showed the rates to the JPY to become BUY 94.86 and then sell 95.01 this implies;
For every 1 USD you give you may buy 94.86 JPYs, and if you want to convert your JPYs back to USDs you just utilize the Sell rate, so for every 95.01 JPYs that you just Target the dealer they are going to hand you back 1 USD.
Hopefully you may now discover why this table is said to have the USD as the base currency, since the rates around the table all show the connection from the foreign exchange (with this example the JPY Japanese Yen) to 1 USD.
You can hopefully also observe how this table would really only be useful for those who are only ever buying and selling merely the USD against other currencies.
By way of example, it will be of just limited use to state an Australian business woman who maybe wishes to sell Australian dollars (AUDs) as a way to purchase goods in america with USDs, but who receives payment on her services to her Japanese clients in JPYs, and from her local clients in AUDs, and who needs to pay her local staff in AUDs, and who would like to possess some EUROs in their pocket for her business trips to Europe !
In her 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.