Traveller's Pocket Guide
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What is currency exchange?
A currency exchange is a market place which allows individuals and traders to exchange one currency for another currency at specific rates. Currency exchange is used by investors and speculators as well as individuals and companies. To take a simple example, if you are planning to visit Australia on a holiday, you will require to exchange your Indian rupees for Australian dollars before you depart as you cannot use Indian rupees for purchases in Australia. Alternatively, you could buy American dollars and exchange them for Australian dollars once you reach your destination. In both instances, you would need the services of a currency exchange agency.
Similarly, if a Japanese company wants to buy Swiss cheese, they will need to convert their Japanese Yen to Swiss francs to pay for the imports as the Swiss company will not accept Japanese currency. Thus there is a constant demand for currency exchange in keeping with the requirements of individuals, global trade, central governments and other invested parties.
A currency exchange bureau continually observes changes in conversion rates to regulate the monetary worth of each country's currency. It is also referred to as a foreign exchange market.
Banks offer currency exchange services as well as other financial instruments. A currency exchange can be an individual business as well. The currency exchange business generally makes a profit through means of taking a commission. They could also adjust the exchange rate in order to make a profit.
Top traded currencies globally include the US dollar, Euro, Australian dollar, and Chinese renminbi.
What is an exchange rate?
The rate at which one currency is exchanged for the other is known as the exchange rate. It is also known as a foreign exchange rate, forex rate, or FX rate. An exchange rate has two components: The domestic currency and the foreign currency, which can be can be quoted directly and indirectly. If the currency traded on the currency exchange does not have the domestic currency as one of the two currency components in an exchange rate, it is referred to as a cross currency or a cross rate.
What is a direct quote?
When the price of a component of a foreign currency is expressed in relation to the domestic currency, it is known as a direct quote.
What is an indirect quote?
When the price of a component of a domestic currency is expressed in relation to the foreign currency, it is known as an indirect quote.
Currency exchange in India
Regulations covering currency exchange transactions were eased with the passing of the Foreign Exchange Management Act, which came into effect in June 2000. Prior to the Act, there were numerous bottlenecks and red tape barriers in the area of currency exchange in the form of various permissions required from Reserve Bank of India for many transactions. The need for special approval for most transactions has since been removed and many regulations regarding foreign currency exchange have been relaxed.
In India, authorized dealers and their bureau have the power to buy and sell foreign currency notes and coins to the public at rates determined by prevailing market conditions. Dealings in the currency exchange market - i.e., trade in foreign currency notes and coins between authorized dealers and money changers - also typically takes place at currency rates determined by existing market conditions.
Currency trading for individual investors
The currency market offers a good investment opportunity for those looking for an alternative to the stock market or fixed deposits or other conventional forms of investment. If you are planning to trade in foreign currencies, it is very important to first make sure that you gain a thorough understanding of how today’s currency markets work. The global foreign exchange market is the largest market place in the world in terms of the size of the trading. It is a highly volatile market characterised by constant fluctuation, which necessitates both specialized knowledge and close monitoring. Investing in foreign exchange can be a lucrative option although you need to be aware of the high risks involved as well.
At present, the Indian currency markets are largely regulated by the Foreign Exchange Management Act. If you plan to start trading in the currency market, it is advisable to start small and gradually invest larger amounts once you develop greater knowledge of the field.
Factors affecting value of a currency and its exchange rate
If are looking to invest in the currency market, you have to very carefully follow global developments, trends in global trade, economic and political indicators of different countries among several other factors that impact currency prices.
In addition to global international trends, the value of a currency is influenced by a number of domestic financial and political conditions. This includes the GDP growth, fiscal and monetary policies, currency inflows and outflows in the country, local stock market performance and interest rates, inflation, economic and political stability. Based on all these factors, currencies gain a particular value. All currencies are priced relative to each other.
The governments of individual countries also have the power to influence the value of their domestic currency through the central bank. They do this by flooding the market with the domestic currency so that the excess supply drives the price down. If they want to raise the value of the domestic currency, they will buy up large amounts of the currency in order to create a situation where demand exceeds supply and the currency becomes dearer. This activity is known as central bank intervention. However, while the central banks have some measure of flexibility and power in determining the value of their currency, the currency market is too big for any single entity to make a difference over a length of time.
What is a currency converter?
A currency converter is a currency calculator that converts the value or quantity of one currency into the relative values or quantities of other currencies. Currency conversion is done using special software codes and is designed such that the conversion is done quickly and accurately.
It is easy to use an online converter to get instant results on currency exchange rates. Currency conversion tools such as the CreditMantri Currency Converter (available online on the CreditMantri website), enable users to get quick and accurate results which are of vital importance in a market that is characterised by constant fluctuations.
A currency converter allows traders, investors, and speculators to compare the value of one currency against another. The values of the different currencies are determined based on the supply or demand of currencies and is automatically reflected in the online currency converter.
Currency conversions also can be determined by contacting a local bank or currency exchange agency and asking for the day’s currency rate. Keep in mind that the rates might vary slightly between the exchange agency and the bank. If you use an online currency converter, you might also a difference in rates. The rates shown on currency converter tools usually do not take profit/commissions into account and show live rates.
CreditMantri’s online conversion tool
You can use CreditMantri’s online currency conversion tool to get instant, accurate and constantly updated quotes on current currency exchange rates for leading currencies. The tool will enable you to get quick and free access to live currency rates as well as additional data that will help you with analysing currency trends. For instance, you can view graphs depicting currency prices over a period of time. This rich data will help you gain a new perspective and understanding of the trajectory of particular currency trends. You will have a better insight into prevailing price movements that might potentially help you with currency investments or buying currency for personal or business purposes.