If you’ve ever traveled or done business overseas you’ve more than likely done currency transfers before. Were you aware that you might have your own foreign exchange bank a/c and change your hard earned dollars online at rates far better than your bank will give you ?
Here we reveal to you the best way to target an exchange rate for your personal forex as being a professional Fx trader, in order that you receive the best possible rate, and we help you get through all the basics you need to know about currencies and dealer quotes.
When you initially begin to deal with foreign currencies a number of the terminology could be confusing, not forgetting how it all works, so let’s try to make it much clearer.
A currency is the sort of money which can be accepted as legal tender in every particular country. E.g. in the usa it’s the usa Dollar, throughout the uk it’s the Great British Pound, and then 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 the other person within the international money markets and definately will rise and fall in value relative to one another, usually because of events in international business.
Running a business terminology foreign exchange is referred to as Forex or FX for brief. Within the foreign currency exchange markets each currency is famous by way of a unique 3 letter abbreviation. Those which you will likely see most often are definitely 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
Foreign Currency rates (Changing money from a currency into another)
To begin to comprehend how forex rates are quoted and whatever they mean, let’s begin with considering a forex transaction you will likely have done at some stage in your way of life.
Whenever you conduct an international exchange transaction (e.g. sending money in your folks back home) the dealer you conduct the transaction through will demonstrate the need for one currency against another expressed as 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 right after the decimal point. This simply enables very large transactions.
So, as an example if you are a UK tourist thinking about your holiday spending money for a trip to the US the above mentioned rate only will mean for your needs that 1 GBP will buy you $1.65 (We’re looking purely in the currency exchange rate here, and ignoring any fees the dealer may charge).
If you’re planning on doing a little serious spending on your trip for the US these exchange rate implies that one thousand GBP will buy you $1,654.30
Hopefully that’s fairly clear and understandable. So, here you’ve been able to see the first currency shown inside a currency pair is obviously the base currency because pair, i.e. the pair is showing just how much 1 unit of your base currency (GBP in this particular example) is definitely worth within the other currency (the USD in such a case).
If on your return from your trip to the US, you find that you didn’t manage to spend all of your US dollars and still have $1,000 left which you need to convert back into GBP, the transaction at this point you wish to accomplish is to purchase GBP by Selling the USD.
So, you now would ask your dealer for any USD/GBP buy exchange rate. i.e. for each 1 US dollar, how many British Pounds will you deliver?
If you’re changing funds in multiple currencies it’s easiest to consider all transactions regarding Buy rates as shown above.
Once you visit a foreign exchange counter with a bank you may normally see a display showing various exchange rates versus the domestic currency of the nation in which your bank branch is situated. As an example, in New York City a base currency table shows buy and then sell on rates for all other currencies versus the USD.
When a base currency table showed the rates for your JPY to be BUY 94.86 and SELL 95.01 this simply means;
For each and every 1 USD you give you will buy 94.86 JPYs, and in order to convert your JPYs directly into USDs you merely make use of the Sell rate, so for every 95.01 JPYs which you Target the dealer they will hand you back 1 USD.
Hopefully you may now understand why this table is claimed to offer the USD as its base currency, since the rates on the table all show the connection of your foreign currency (in this particular example the JPY Japanese Yen) to 1 USD.
It is possible to hopefully also find out how this table would actually just be useful for folks who are just ever selling and buying just the USD against other currencies.
For example, it would be of just limited use to say an Australian business woman who maybe desires to sell Australian dollars (AUDs) to be able to 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 must pay her local staff in AUDs, and who wants to have some EUROs in their pocket on her behalf business trips to Europe !
In her own particular life she doesn’t genuinely have one base currency, as she receives her income in Japanese Yens and Australian Dollars, and spends profit AUDs, USDs and EURs.