What Is An Exchange Rate
Basically, an exchange rate in terms of currency, simply means the amount of money you will receive when you exchange one currency into another currency.
For Example: Let’s say you want to exchange the British currency GBP (Great British Pound) into Euros. Then, the exchange rate would be determined on how many Euros you would receive for every pound you exchange.
If the exchange rate for that day was 1.20, this would mean that for every one British Pound you exchanged, you would receive 1.20 Euros. So, if you wanted to exchange £100 British Sterling into Euros, you would receive 120 Euros.
It also means that if you wanted to exchange Euros into Great British Pounds and the exchange rate was also 1.20, you would receive £1 for every 1.20 Euros you exchanged. So, with this exchange rate, for every 120 Euros you exchanged, you would receive £100.
Although most people only really take notice of the exchange rates when they are going on holiday and will be more familiar with the term ‘Exchange Rate’, there are many different ways that exchange rates are referred to such as: Foreign Exchanges Rates, Forex Rate and FX Rate. The latter terms are more commonly used by professional traders whom make their living trading currencies.
The ‘Buying’ And ‘Selling’ Exchange Rate
If you have ever exchanged money before going on holiday or have been looking for the best exchange rates for euros, you will no doubt have noticed that the currency exchange bureau where you exchanged your money will have had advertised a ‘Buying’ price and a ‘Selling’ price. These are usually displayed under the terms: ‘We Buy’ & ‘We Sell’, these prices are usually different and are usually against the local currency. You should always check that you have read them correctly!
How Is The Exchange Rate Determined And What Effects The Rate Of Exchange
There are many factors that determine the currency exchange rate. Interest rates, inflation, economic stability of a country, terms of trade and public debt are just a few factors that can make one countries currency fluctuate. The exchange rate is determined in the Foreign Currency Exchange, where different types of buyers and sellers trade throughout the day.