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About Currency Exchange
It is undoubted that foreign exchange is a very crucial and yet complex subject to understand. Especially those industrial terms make it all the more confusing. We will give you all the very basic terms related to currency for you to understand it.
Market rate /spot rate: this is the rate in which bank and other big financial groups charge each other when they deal in a large amount of foreign currency. The formal term that denote it is ‘interbank’ rate. But that is perhaps all the more difficult to remember.
Spread: the difference between the buy and sell rates offered is called the ‘spread’. It is generally offered by a foreign exchange company or provider.
Sell Rate: in this sell rate we exchange foreign currency for local currency. To make it simpler let us take an example, suppose you are going to England, there you have to exchange your US dollars with the pound in sell rate.
Buy Rate: it is the rate in which the exchanger will buy currency from you. And in exchange you will get local currency. Again we can take the similar example, we you have finished you travel in England and you are coming back to US, you will return all the pound to the exchanger and he will buy the currency at the buy rate of the day, and give you back all remaining balance in US dollar.
Vacation Money Rate or Tourist Rate: this is only another term we know the sell rate as. You have just learnt the very basic terms related to exchange rate and now we will go deeper inside into the matter of Exchange market.
Q: Why does currency exchange rate fluctuate?
As the financial market change with very rapid course of time the currency exchange rates also fluctuates with that. It constantly moves up and down in order to match the changed value for money. There are some reasons that determine the ups and downs of the rate, such as:
Gaps in demand and supply
Any major political issue
Any major economic changes
Q: Why market rate and tourist exchange arte are not the same?
The market exchange rate is applicable only for the banks and the big companies. The currency a tourist get in a sell rate must differ from the basic spot rate as it takes a lot of people and effort as well as it passes through different process to reach your hand.
Foreign Exchange market
The foreign exchange market is the most liquid financial market in this whole world. All the govt. banks, commercial banks, other commercial corporations and institutes are included in this system. The average turnover of this global exchange market is rising with leaps and bounds. According to the survey performed in the year 2010, the average daily turnover of it is $3.98 billion.
In April 2010, trading in the United Kingdom was 36.7 % of all the businesses and thus making it the most important sector for the foreign exchange trading in the world. The biggest geographic trading center is the United Kingdom and primarily London. As the London market dominates the trade, a particular currency’s quoted price is the London market price.
Exchange rate flexibility
It is a monetary system that allows the exchange rate to be changed according to the demand and supply rate in the market.
Floating exchange rate
This is another term for Fluctuating exchange rate. In this exchange regime the currency’s value fluctuates as per foreign exchange market mechanism. The currency which uses floating exchange rate is also known as floating currency. A floating currency is contrasted with a fixed currency. In the modern world all the currencies of the different places are actually floating currency. The term fixed currency does not exist in real world market.
The most widely traded currencies are:
The most traded currencies are United States Dollar, the Indian rupee, The Euro, The Norwegian krone, the Japanese Yen, the British Pound and finally the Australian Dollar. ,p>A currency future also called as FX Future or Foreign Exchange Future, is a contract for the future to exchange one currency for another at a predefined dated in the future at a rate that has been defined on the purchase date. These currency futures were first introduced in the year 1970 in New York. It was first created by the International Commercial Exchange (New York).