What are Exchange Rates?

  • ERemit
  • 14 November, 2020
  • 2 minutes read
post-thumb

You always see the promotions of money traders offering great exchange rates in international money transfers.

Haven’t you wondered what an exchange rate really is? Here is the answer!

The exchange rate is the value of one currency against the other.

In international money transfers from Australia, you name Australian currency as domestic or base currency and the other as the foreign or counter currency.

Assume that the exchange rate to India is now 1 AUD (Australian Dollars) = 54.19 INR (Indian Rupees).

So if you send 10 AUD from Australia to India, the family member receives Rs. 541.9 in India. That’s how exchange rates work.

Now, let us see the two types of exchange rates across the world:

1- Flexible exchange rate:

Flexible exchange rates are constantly fluctuating due to many reasons. They are never fixed by the government or central banks. US dollars, Australian dollars, European Euros, British Pounds etc. are flexible they change their exchange rates from time to time.

2- Fixed exchange rate:

Certain countries have fixed exchange rates that seldom changes. They only change of the central government of the country demands a change. Saudi Arabian Riyal is the greatest example of fixed exchange rates.

As mentioned above, some of the countries have fixed, and others have flexible exchange rates. Let us see the major factors that affect exchange rates to fluctuate:

1- Interest Rate:

The interest rate of a country has a considerable effect on the exchange rates. The higher interest rate of a country increases the value of their currency and attracts many potential investors for the higher interest rate.

2- Economy or Financial Stability:

Economic condition of a country has a direct effect on the exchange rates. A strong economy gives rise to a strong currency that investors would like to hold and make investments.

3- Money Supply:

Oversupply of currency in a country leads to a drop in its value and resulting in inflation.

There are lots of things to keep in mind while transferring money overseas.

Make your money transfers through the best online money transfer in Australia at greater exchange rates.

Make sure that your acquaintance receives a maximum amount of the money you sent.