How to Determine an Exchange Rate

An exchange rate is the cost for exchanging one currency for another. Exchange rates oscillate regularly throughout the week since currencies are being actively traded. That makes the price go up and down. The price for a currency on the market differs from the rate you will get from your bank when you exchange currency.

Market Exchange Rates

Traders and companies buy and sell currencies around-the-clock during the week. In order for a trade to take place, a currency must be exchanged for another. For example to buy British Pounds (GBP), another currency must be used to buy it. Regardless of what currency will be used a currency pair will be created. If U.S. dollars (USD) are used to buy GBP, then the exchange rate is for the GBP/USD pair.

Understanding an Exchange Rate

If the exchange rate for the USD/CAD pair is 1.0950, that means one U.S. dollar costs 1.0950 Canadian dollars. The first currency in a pair always stands for one unit of that currency. The exchange rate shows how much of the second currency is necessary to buy one unit of the first currency. In other words, this rate tells you how much it costs to purchase one U.S. dollar using Canadian dollars.

In order to figure out how much it costs to buy one Canadian dollar using U.S. dollars the following formula should be used: 1/exc. rate. In this case the position of currencies will switch (CAD/USD).

Conversion Spreads

When people go to the bank to exchange currencies, it is most likely that they won’t get the market price that traders get. This is because the bank will markup the price to make a profit. If the USD/CAD rate is 1.0950, the market will say that to buy one U.S. dollar it costs 1.0950 Canadian dollars. However the bank says it may cost 1.12 Canadian dollars. This difference represents the profit. If you need to calculate the percentage discrepancy, take the difference between the two exchange rates and divide it by the market exchange rate as follows: 1.12 – 1.0950 = 0.025/1.0950 = 0.023.

Currency exchanges and banks compensate themselves for this service. The bank offers cash, while traders do not deal in cash in the market. To get cash, processing, wire or withdrawal fees will be applied to a forex account. For most people who are looking for currency conversion, getting cash momentarily and without fees, but paying a markup, is a reasonable compromise.

Determine Your Needs

If you need a foreign currency, you should use exch. rates to calculate how much foreign currency you need as well as how much of your local currency you will need to purchase it.

If speaking about Europe, you will need euros (EUR) and will need to check the EUR/USD rate at your bank. The market rate can be 1.3330, but an exchange house can charge you 1.35 or more.



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Buying Foreign Currency Is a Great Investment Scheme

There must be very few people on earth who would not like to earn some extra money over and above what they already earn. This is the very reason for the immense popularity of games of chance like lotteries and casinos, all over the world. But there are other ways of making money too and these ways are more foolproof than lotteries or casinos.

There are stock markets, share markets and currency markets. If you know how to trade in these markets you can actually become rich overnight but there are risks involved too. But what is gain without a little risk? Just make sure you do not take any unnecessary risks as that can cost you all your savings. First read and understand the workings of these markets and once you are ready you can start trading and earning profits.

Among the three markets mentioned above, the currency market is possibly the most lucrative. Buying foreign currency against the currency of a country and selling it against the currency of another country is a trading option that involves less risk than trading in the share or the stock market, the reason being that economies of countries do not generally oscillate between good to bad overnight. But to be a good trader, you would have to keep track of all the business and economic development of the countries all over the world. Without knowledge, you can not earn any profits in the currency market. One sure shot way of earning some profit though is to buy Iraqi currency. Iraqi currency or dinar investment has become quite a craze among traders in the currency market because of its low value and high return. But then again like it is said before, you need to know thoroughly about Iraqi dinar before you go to buy Iraqi currency.

Buying foreign currency and selling it might sound simple but actually it is anything but that. For one thing you can not trade directly in the currency market, you need a reliable broker. This broker would more often be a company than an individual and would be available to you only through phones, emails and faxes. And since for buying foreign currency, it is important that you first choose your broker carefully. There are numerous companies that would offer you different services along with brokerage but do not fall for the trap. Make a well-informed and sensible decision.



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The Foreign Exchange "Forex" Market and the Two Main Provisions of Trade – Part 2

In part 1 we looked at the global nature of the forex market and that many of us may engage in forex deals without really being conscious of it. We took a look at what makes the price spread on rates and how this can vary depending on who we are doing our deal with. We looked at the speculative trader who is seeking to make profits on market value changes and so loves volatile markets that give opportunity. We also looked at the other type of trader being primarily business and corporate entities. These traders seek risk reduced business transactions across countries and different currencies. In part 2 we take a closer look at the two types of deal and trader.

The depth of the forex market is truly astonishing with a staggering average daily turnover of 1 Trillion US Dollars, making it by far the largest financial market in the world.

The market opens in Sydney and then follows the start of the new business day to other center openings such as Tokyo, London, New York.

The huge diversity of traders and players in the market, both in terms of background and deal size, makes for a truly exciting market. This can be a real conundrum for governments seeking to control their country's currency exchange level in the market through central bank intervention – not always successfully. This liquidity and volatility is perfect for forex traders who want to make profitable forex trades on exchange differences and also ideal for the many automated trading systems now being used by lay traders and professionals. Before the development of internet trading access for the general population in the 1990's, bank dealing rooms and large brokerage firms developed computerized trading models to reliably control speculative risk in trading and reduce the reliance on human brokers. The recent rush to access the forex market, using similar tools by lay traders, has seen the development of forex robot trading systems that are modifications or facsimiles of the systems used by the larger institutions. Many of these automated trading systems that are offered on the internet are light weight, poor quality and do not reliably deliver the profitable trades that are promised, but some of the systems do – if set up and used correctly.

Most forex robot trading models use mathematical algorithms and precise programming to make trades in a controlled manner. Some forex robots are designed to perform many trades delivering small gains over very short trade time windows such as one minute. They can be set to stay on 24 hours and trade the full time of the world market with no need of a human broker. Other automated forex systems are designed to use much longer trade time windows such as 4 hour. The point here is that the trading robots and automated systems vary in the designed method of the trading system but all are intended to isolate human emotion, greed and error by automatically delivering the bulk of the trades made as profits against a smaller number of loss trades , thus incrementally growing a profitable account. The added advantage of these automated trading systems is that they take away the need for thorough knowledge of the market and forecast systems that broker and dealers once had to know and rely on. Obviously, knowledge and understanding is a huge benefit when trading the market for profit, even using a forex robot to do it for you. With little or no knowledge, the consumer is still left with the decision of choosing a forex trading robot that works and setting it up correctly. Some forex robots do have problems in that trading system design is not flexible and sophisticated enough to cope with unusual market conditions and hence can fail when the market changes. Other forex robot systems are more robust and sophisticated in their programming design and they are able to detect market conditions where trades, using their particular method and model, must be avoided.

At its simplest, for business, foreign exchange is essentially about exchanging one form of currency for another. Complexity occurs due to three factors. Firstly what is the foreign exchange exposure (how much and what currencies?), Secondly what will be the rate of exchange, and thirdly when the actual exchange occurs. It is through trying to control these factors that a trader or customer seeks the best advantage in making a deal.

Foreign exchange exposures come in about many diverse situations. A traveler has the risk that if that country's currency appreciates against their own, their trip will be more expensive.

An exporter, who sells a product in foreign currency, has the risk that if the value of that foreign currency falls then the earning and profit in the exporter's home currency will be lower.

An importer who buys goods priced in foreign currency has the risk that the foreign currency will appreciate causing the local currency cost to be greater than expected and so reducing profit.

Fund Managers and companies who own foreign assets are exposed to falls in the contracts where they own the assets and so are exposed. The exposure affect would occur if they were to sell the foreign assets in a falling market so that their exchange rate would have a negative effect on the home currency value that they would realize.

Other foreign exchange exposures are less obvious and relate to the exporting and importing activities in your home country where the negotiated price is being effected by exchange rate movements. The consumer would see this in retail where prices may gradually change, rising or falling, according to exchange rate variation and the retailers effort to maintain the margin, or offer a discount with no impact on his margin factor.

The aim of foreign exchange risk management is to stabilize a business cash flow against exchange exposure and reduce uncertainty from financial forecasts. There are also a range of hedging instruments that achieve exactly that, and two forms of the market that enable these instruments to work for the business person. One form of the market gives an immediate or 2 day deal maturity exchange price (spot price market) the other form is the forward or future market that enables an exchange deal to be locked in, months in advance of the exchange taking place, but takes into account a forward adjustment rate on the spot rate at the time the transaction is arranged. The forward adjustments rate allows for interest rate changes on a forward 'future' contract where a future settlement date is agreed for the deal. It is a bit like taking out a loan at a fixed rate.

These are all issues of concern for standard business between currency types where seeking a reliable, predictable or stable exchange rate is the major concern for business. This is needed so that profits from business activities, unrelated to exchange rate issues and disconnected from them, can be relied on in the home currency.

We can now understand that the speculator trader is not as concerned about stability but relations on market volatility and movement between currency pairs to create a profit making market environment and so opportunity arises through a rising or falling value in one currency against another. The business and corporation looks for the opposite to stabilize budgets and deals.

Banks, traders and even Governments, trading to profit from value changes between currency pairs, can effect the market and speculators may abhor flat stable markets; but the market is really a barometer measuring the value of one currency relative to another as determined by a many complex economic and political factors in each country.

So it is that the trader must still, through prediction, try to ride changes in currency values ​​to make profitable trades. The trader does so using brokerage, online trading or online automated trading and employing forex robot tools, technical or fundamental forecasting methods. The business person, looking for stability and reduced risk in his currency trading, tries to reduce his exposure to value changes via hedging and forward contracts.

Thanks for reading and see you again for the next article.

Eric Bray



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Beware of Fraud While Buying Foreign Currency

Many people have a fascination of buying foreign currency. While for some it is a mode of investment, for others it is just a hobby for collecting money of different countries. Whatever be the case, it is always good to check the authenticity of the foreign currency notes before you make a final purchase. However, there might be a problem in that too too nowdays most of the foreign currency has to be bought through an online dealer. This does not let the customer check the notes then and there and can only be checked when they are delivered. This is the reason that the transaction should be done with an authentic dealer who will assist in case of any issues.

Many people are seen to buy Iraqi currency for investments. It is true that the Iraqi currency has very low valuation in the current financial market. This is due to the upheavals that have taken place in the country. The sociopolitical as well as economic instability in the country has pushed down the valuation of dinar to all time low. However, financial experts have faith that with the stability of the economy, the currency will also gain appreciation in terms of valuation. Since there is an unrest condition in the country, it is good that you check everything in details before you plan of buying foreign currency from Iraq.

If you have made your mind that you will buy Iraqi currency then start doing a little study and research on the same. Start reading financial articles related to the currency to understand the market situation. Most importantly, each country can some anti-counterfeit features on the currency notes to prevent fraud and scams. While buying foreign currency of any country, you must make sure that you check the features well so that there are no problems in the future. In case there are any problems, make sure that you contact the online dealer and tell him about the same.

If you are looking for quick returns from your investment, then you must think twice before you plan to buy Iraqi currency. In this investment, the chances to get quick returns are meek as the valuation of the currency is at all-time low now. But conditions might improve over the years and then a good return might be obtained after some years. For long-term deposit plan, this is a good idea for sure.



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Currency Converter – The Essential Service for Forex Traders

Currency converters are programs which are available online for everyone to use but, what exactly are they and how do they assist you? A currency converter is the online live program converter that calculates or specifics how much one currency is worth relative to another currency. For example you may be interested in how many New Zealand dollars it will take to buy one Australian dollar this currency converter can do the calculation easily for you.

Foreign currency exchange rates (Forex for short) are the rates recently traded between the country's currency and another country's currency. These are live converters and they constantly change as traders buy and sell currencies and supply and demand increases or decreases, impacting the bid and selling rates. With the currency converters you can easily compare the conversion rates by searching on the internet under currency exchange rate converter and Australia or US dollar or any other currency you are interested in. Most online Forex site have currency converters conveniently located in them.

If you are able to watch the currency converters regularly you can tack when the best exchange rates are to get the best rates. It may be wise to observe the average the high and the low for the day / week etc so as to know in what range your contracts have been trading. In this way you have a limited understanding to be able to predict where the treaties are heading. At the end of the day no one can predict the future but these statistics give us an indication of the 'anticipated' direction.

With so many options for obtaining foreign currency it may be useful to look at some of the terms more commonly referred to in the trading terms.

Forex rates are the rates commonly traded between all major country's treaties. These are subject to change regularly as the trader buy and sell more or less of the currents and the general supply and demand increases or decreases. Conversion rates are quoted regularly as online as the buys and sellers bid to negotiate buying / selling rates. You can easily compare the conversion rates and watch the monthly rates to see when your rate drops or climbs so as to decide when to buy. Just search on the internet for currency exchange rates of the currency you are tracking. There are also online money converters which can use the current exchange rate to convert your currency into the foreign exchange currency equivalent.

As long as you are able to prove that you have a valid reason for the foreign currency banks are allowed to sell the foreign currency to you. Bank currency exchange rates are the rates that the banks will buy and sell physical treaties to their customers. Obviously they add on commissions and charges for acting as the middle man do the rate may be a few cents more than the exchange rate quoted. As another safe option you may choose Travelers checks (a form of travel cash or travel currency). These are checks made out in the foreign currency which are effectively purchased in your local country but can be redeemed overseas. The benefit is that they are protected so if you lose the checks then the bank will issue you new checks as opposed to losing the physical currency which would be a disaster!



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Factors Affecting The Currency Conversion Rates

The foreign exchange market is the hottest and largest highly liquefies financial market in the entire world. The participants of this market are large banks, governments and big multinational companies and financial institutions. The Currency Exchange market is recently introduced to the public. Any individual can enter into the field of currency conversion trading making use of the foreign exchange broker.

Basically foreign currency conversion market deals with trading between different foreign currencies. In this trading, you buy a currency using a foreign currency of another type. The industry runs purely on speculation. The participants of currency conversion indulge in trading and buy a foreign currency expecting the currency to have more value in the future.

The results of currency conversion trading happening in one country will affect the other countries in the market. The countries will open and close the currency exchange market with different time zones. On the whole the market of foreign currency exchange is open all the time on all 5 weak days.

The market highly depends on the currency conversion rates. The buying and selling of currencies greatly depend on the future value of the currency. The currency conversion rates change everyday. The value of US dollar or practice any currency will not remain the same next day. The rates are continuously changing and you have to carefully follow the changes to make profit.

There are several economic and political factors that affect the currency conversion rates. Depending on these conditions in the participant countries, the corresponding value of foreign currency will increase or decrease.

Budget of the government

The currency value of a country varies with the government's budget. If the revenue of the country exceeds its expenses then it has budget surplus and the currency rate increases. The opposition occurs when the country has more debts.

Trade levels of a country

The currency conversion rate increases when the country has trade exceeded, that is, it exports more than it imports. The trade deficit will have adverse effect on the currency value.

Inflation trends

When there is inflation in the government's economy, the purchasing power is reduced which causes the currency value to decrease. Sometimes the currency value will increase expecting the banks to increase the interest rates to balance the economy of the country.

Robust economic growth

The economic growth of the country is determined by various numbers like GDP, FDP etc. When these numbers are high the country is economically strong which increases the demand for its currency.

Political factors

The political stability of the country has implications on the relationship with other countries. If the political condition becomes unstable then the credibility of the country is reduced thenby effecting the currency value.

Traders' psychology

When more and more traders are trying to buy the strong foreign currency then the demand increases. As a result of this the currency value also increases. Generally when rumors spread in the industry when a specific foreign currency is expected to increase in value the traders buy them. When the value is actually found to increase, those treaties are sold. When the supply of a particular currency increases, the conversion rate starts to decline.



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Forex Trading is Meant to Be Known As Foreign Exchange Trading

Forex Trading is meant to be known as Foreign Exchange Trading or trading by exchanging currency. The understanding of forex trading is complementary with the understanding of foreign currency. Foreign currency is simply a currency of any country; say the Indian rupee, the US dollar or the UK pound. Initially, we were known to the barter system for buying and selling of goods.

With the change in times there occurred a change in the buying-selling process; as it saw a tremendous change in the form of currency exchange. When buying inside the territory of a country, the process is reliably easy but when exports and imports come into scene, traders have to have a system that is easily acceptable and can be related to. The system of currency exchange comes to the rescue here. To explain in simple terms, the money or currency of one country is changed into the currency of another. An example here might help the understanding of foreign exchange. A trader from Japan exporting material from USA will have to exchange the Japanese yen with the US dollar.

When foreign exchange trading is to be understood in bolder terms in lieu of big time profits, we look into the foreign trade on the larger scale, ie between worldwide traders rather than foreign exchange due due to tourists traveling worldwide or other reasons. Tourists though provide with a lot of foreign currency but the economic condition improvises with that of big trades happening at the global level. The main flow of foreign currency into a country can be accredited to forex trading or forex market, as it is often known. It is due to this that forex has gained popularity and is the most acceptable medium for exchange of currency.

The major thing under consideration is the national income of a country which improves a lot with the help of increased foreign trade, which brings in foreign currency to a nation. Thus, forex trading is derived from initials of Foreign Exchange Trading which simply means trading under foreign exchange. Foreign exchange trading is picking up immensely due to increased businesses globally. Many investors choose to convert currency in forex for maximum profits. The forex trading or forex market is characterized with extreme liquidity and the most traded currencies on forex are the US Dollar, the Japanese Yen and the Euro.

The forex being a highly liquid medium asserts the trader in buying and selling currency easily and quickly without being taken in other investments. Thus, this form of trading is always profit yielding.



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