Oliver And Co Business
Finance

Understand how currency exchange works

If you have to exchange one country with other country currencies, foreign exchange rates will be played. For example if you have to go to England for a vacation, you have to pay in the English or euro pound for local shopping. For this you must visit the bank for currency exchange. The bank will change your currency to the currency you want on a common exchange rate. If for every $ 1000, you get GBP 568,344, then each dollar is worth 0.568344 GBP. This value continues to fluctuate and you may get a different amount with the same $ 1000 at different times.

Traders buy or sell currencies and take advantage of this fluctuation to benefit. Sometimes retail customers also participate in the currency exchange market mostly as speculators in hopes of making profits due to increasing and falling in currency values.

According to the basic economy, if the supply of a good increase, the price of goods will decrease. Therefore if the state currency supply increases, we see that more certain currencies are needed to buy other currencies. This means that the currency whose supply has increased has been evaluated. The currency is traded in a foreign exchange market and there is no need that the currency will always be available in the same amount. Quantity and price will continue to fluctuate. There are various factors that influence the supply of currencies in the currency exchange market.

Factors such as export companies, foreign investors, speculators and central banks affect the currency exchange market.

The export company: in the event that the export company located in the US exported its items to companies in France. The money to be received from France will not be useful in the US. Therefore the currency must be exchanged. The US export company will now sell euros on the currency exchange market. This will increase the euro supply and reduce the supply of dollars. Thus the value of the US dollar will appreciate and the euro will depreciate.

Foreign investors: This process also involves currency exchange. In the case of foreigners plan to invest in your country, he must get his currency into the local currency to invest (such as land and workers). This action will increase the supply of its currency (thus deprecating its value) in the currency exchange market and will reduce the supply of currencies (thus appreciate the value of the currency) in the country where it invests.

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