What Are Exchange Rates?

The COVID-19 pandemic has had significant effects on global exchange rates. With currencies across the world fluctuating wildly in response to the pandemic, certainty has never been in short supply. Whether you’re a grizzled forex trader or just trying to sort out some cash for a trip to Europe, exchange rates have impacted you.

So, what are exchange rates?

Oh, sure, everyone has a rough idea about what currency exchange rates are. But do you really know how they’re set, influenced, and determined?

Let’s find out.

What Are Exchange Rates?

In the simplest possible terms, an exchange rate is just what one country’s currency is worth in the currency of another country.

But, of course, international finance doesn’t tend to work in the simplest possible terms.

For example, a key thing to understand about exchange rates is that most of them work on a ‘free-floating basis. That means the value — or price — of a given currency is allowed to fall and rise in response to all sorts of factors, most notably supply and demand.

That, of course, opens up those free-floating currencies to a lot of volatility. That’s why some countries choose to place restrictions and how and where you can exchange their currencies. Others choose to ‘peg’ their currencies to those of other currencies (often the US dollar exchange rate), making sure their value always corresponds to another country’s currency.

As you can see, the process of establishing an exchange rate is a lot more complex than it first appears.

How Can I Get the Best Money Transfer Exchange Rates?

This is the key question. Travelers often find themselves taken by surprise when trying to exchange or transfer money abroad.

There are a few basic rules you should follow when traveling so that you don’t get bad rates. For example, everyone knows that the currency exchange kiosks at airports always have far worse rates than you’d get elsewhere.

Likewise, if you’re paying by card, it’s a good idea to opt to pay in the local currency instead of your home currency. Paying by your home currency will incur additional conversion charges that will make your final cost much higher.

But what about transferring money?

If you’re looking to transfer money between countries without an exchange rate shock, the best thing you can do is find a well-regarded and transparent transfer service. A good resource to check on different transfer services is www.transferly.com, which offers reviews of various transfer services.

With a bit of know-how, you can avoid exchange shocks.

Boiling It Down

So, what are exchange rates? Pretty complicated, it turns out! There’s no end to the factors that go into deciding what exchange rates end up being.

But, luckily, you can avoid being taken by surprise if you just remember a few rules. So long as you keep these tips in mind, you can sail the choppy seas of exchange rates with ease.

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