Foreign Currency Exchange Rate - Currency Exchange Rate

Here we discuss about the foreign currency exchange rate. Firstly, we must understand what foreign exchange rate is. Basically, it is the rate at which one currency is converted or exchanged with another currency. For example, we can say that the rate set for Euro to Dollar is 1.09, means 1Euro = 1.09 Dollar, 1 Dollar = Rs.100, and so on.

We can use Currency Converter to find out live rates.

The value of one currency is increased when the purchasing power of one’s country is increased and vice versa. Every Country has its own currency different from others. There is no common medium of exchange between them. So exchange rate is used to transact between two countries. Exchange rate is determined with help of demand and supply for foreign currencies. The more demand of foreign currency the higher the exchange rate and vice versa.

Demand for foreign exchange rate depends upon many factors, the most important of them are Imports of goods, Tourism, Overseas, Remittances, grants, etc.

Supply for foreign exchange is affected by exports, foreign investments, as well above mentioned factors for demand for foreign exchange.

Now, we discuss about the factors affecting exchange rate:

ü Imports

The more imports of a country, the more adverse effect on the exchange rate because the more value of local currency decreases and the demand for foreign currency increases.

ü Exports

The exports of a country have a direct relationship with the supply of foreign exchange. The more exports of a country the more favorable for the value of the local currency and hence the result is lowering the foreign currency.

ü Exploration of Natural Resources

When a country explores more natural resources, the chances are that it becomes self-sufficiency and independent and ultimately exports increase to gain foreign reserves.

ü Tourism

Foreign Tourists are also major source of increasing exchange reserves which ultimately increase the rate of foreign exchange in favor of local currency.

ü Overseas, Remittances and Grants

Overseas people living abroad, remittances and grants from abroad countries to home land are also helpful in increasing foreign exchange rate for the home country.

It is important to note that Grants are not good for the independence of a country. However, it is important in case of natural disasters like Floods, Earthquake, etc.

Now a days, the importance of trade is increased due to which exchange of currency is vital for business transactions. The development of a country depends upon the value of money used for business transactions.

So after studying above topic Foreign Exchange Currency Rate, we can say that the international trade is possible only with the help of this standard foreign exchange rate set among countries.