Top 3 Reasons why Currency Exchange Rates Fluctuate
Are you an expat who sends money home regularly or a frequent traveller who trots across the globe for business or leisure? We bet youÔÇÖd be watching the foreign exchange rate movements because every rise or fall in the exchange rate would affect the value of your hard earned money sent home or spent on travel, food, accommodation and shopping.
CanÔÇÖt make head or tail of the exchange rateÔÇÖs rollercoaster ride? WeÔÇÖll break it up for your easy understanding.
Currency exchange rate is defined as the rate at which one currency can be converted into another. For example, when 1 AED (United Arab Emirates Dirham) is approximately INR 18 (Indian Rupees), it means, for every 1 Dirham given or spent, you should get Rs.18 or something of its worth.
Understanding the reason behind the exchange rate volatility can help you identify the best time to send money or even travel abroad. Here are top 3 factors that cause currency rate fluctuations.
Inflation rate is the rate at which the general price of goods and services increase in the country. Lower inflation rates indicate a healthy economy thus resulting in significant appreciation in its currency value.
The amount of currency in circulation is called the monetary supply of the country. Central banks all over the world take several measures to maintain stable money flow by benchmarking interest rates. Interest rates indicate the cost at which money can be borrowed. When the interest rate is lowered, businesses tend to borrow and invest thus increasing monetary rotation and stimulating the economy. However when there is too much money in circulation and the supply of goods are less, high inflation creeps in stifling the economy, thus causing exchange rate depreciation.
Political, Social and Economic Conditions
Countries with uncertain political, social and economic conditions do not attract investments. When confidence is lost in a particular market, investors quickly withdraw their money and move their capital to more stable countries. Demand and supply mismatch triggers higher inflation rates, thus affecting the currency exchange rates. Even poor social conditions such as low employment rate causes weak spending, thus curbing money flow. Economic factors such as budget deficits or surpluses, positive trade balances (when exports are more than the imports) and inflation levels influence the foreign exchange rates.
Hence while planning a huge remittance or a vacation, make sure you look for Forex service providers who offer you best exchange rates. Several foreign exchange houses such as UAE Exchange provide profitable deals in foreign exchange rates along with instantaneous Forex rate updates.
Now go ahead, send money to your loved ones and plan great vacations at the right time!