Exchange Rates and How to Choose the Best One for You
Exchange rates are essential to global economics and significantly impact international trade, investments, and travel. Understanding how exchange rates work is crucial for making informed decisions about managing your finances. This blog post will explore how exchange rates work and provide tips on choosing the right one.
What are Exchange Rates?
Exchange rates are the value of one currency about another currency. For example, if the exchange rate between the US dollar and the British Pounds Sterling is 1 USD to 0.80 GBP, one US dollar is exchanged for 0.82 GBP.
Exchange rates are determined by supply and demand in the global foreign exchange market. When there is high demand for a particular currency, its value increases relative to other currencies. Similarly, if money is surplus, its value decreases.
How Do Exchange Rates Work?
What’s better – a high or low exchange rate?
The response to this depends on the perspective and specific circumstances involved, such as the country you are sending from or what currency you are sending/receiving.
For example, when sending GBP to NGN, if 1 GBP gets you 925 Naira today, but in the next few days, it gets you 935 Naira, this higher rate will favour you when sending money from the UK as you will get more Naira with the same GBP.
However, this higher rate does not favour a person sending NGN to GBP because they need more Naira to get pounds.
What is FOREX?
FOREX, short for "foreign exchange," refers to the decentralised global market for trading currencies. It is the largest and most liquid financial market in the world, where participants buy, sell, and exchange currencies based on their relative value.
The primary purpose of the forex market is to facilitate international trade and investment. Individuals, businesses, or governments typically need to convert one currency into another when they engage in cross-border transactions. Forex allows them to do so by providing a platform for exchanging different currencies.
Participants in the forex market include banks, financial institutions, corporations, governments, speculators, and individual traders. Transactions in the forex market occur over-the-counter (OTC), meaning they are conducted electronically between parties directly or through intermediaries.
Currency pairs are the primary instruments traded in the forex market. A currency pair represents the exchange rate between two currencies. For example, the EUR/USD pair represents the euro's value in terms of the U.S. dollar. Traders speculate on fluctuations in exchange rates.
Forex trading is conducted 24 hours a day, five days a week, as the market operates across different time zones worldwide. As a result, it offers significant liquidity, allowing traders to enter and exit positions quickly. Forex trading is done through various methods, including spot transactions, futures contracts, options, and derivatives.
What are the different kinds of exchange rates?
There are different exchange rates worldwide: the most popular ones are flexible and fixed.
Fixed Exchange Rate: A fixed exchange rate is set and maintained by a central bank or government. It improves the value of one currency relative to another and cannot fluctuate freely in the foreign exchange market. Governments often use this exchange rate to stabilise their currency and facilitate international trade.
Floating Exchange Rate: A floating exchange rate, or flexible exchange rate, is determined by supply and demand market forces. It fluctuates freely based on economic factors, such as interest rates, inflation, and geopolitical events. Most significant currencies have floating exchange rates.
Factors That Affect Exchange Rates
Exchange rates are influenced by a variety of factors, including:
Inflation Rates: When a country's inflation rate is higher than that of another country, the value of its currency will decrease.
Interest Rates: When the interest rates of a country are higher, it attracts more foreign investment, which increases the demand for its currency, causing its value to increase.
Political Stability: Political instability can lead to a decrease in the value of a currency. On the other hand, a stable government can increase the value of a coin.
Current Account Deficits: A country with an existing account deficit means that it is spending more on imports than it is earning on exports, which can cause a decrease in the value of its currency.
5 Tips for Getting the Best Currency Exchange Rates
Compare Rates: Before exchanging currency, compare rates offered by different financial institutions, such as banks, currency exchange offices, or online platforms. Look for competitive rates and compare the fees or commissions charged. Azasend offers the most competitive rates if you need help figuring out where to start. We also allow you to see how much you save compared to other platforms. Click Start Here to learn more.
Timing: Keep an eye on the foreign exchange market and consider the timing of your currency exchange. Exchange rates fluctuate throughout the day, so monitoring rates over time is beneficial to identify any patterns or favourable moments. However, predicting exchange rate movements is challenging, and it's essential to consider your needs and circumstances.
Consider Hidden Charges: Consider any additional fees or charges associated with the exchange when comparing rates. Some providers may offer better rates but charge higher prices, so it's essential to factor in the overall cost of the transaction.
Buy items in the local currency: When travelling, buying things in the local currency of the country you are visiting is advisable, as it ensures that you get the fair value set by the local market. When you pay in your home currency or a different foreign currency, the merchant's exchange rate may include additional fees or unfavourable conversion rates, resulting in an inflated cost.
Read Reviews and Seek Recommendations: Look for customer reviews or recommendations from friends, family, or online communities. Their experiences and insights can provide valuable information about different providers' reliability and service quality.
How to find the best money transfer provider
Finding the best money transfer provider involves considering several factors. Here's a step-by-step guide to help you find a suitable provider:
Research and Compare Providers: Start by researching different money transfer providers. Look for well-established and reputable companies that offer international money transfer services. Consider fees, exchange rates, transfer speed, methods, and customer reviews.
Compare Fees and Exchange Rates: Look closely at each provider's fees and exchange rates. Some providers charge a flat fee per transaction, while others charge a percentage-based fee. Compare these fees and consider how they may impact the total cost of transfers. Compare providers' exchange rates to ensure you're getting a competitive rate.
Evaluate Transfer Speed: Transfer speed can be an important factor depending on your needs. Some providers offer same-day or next-day transfers, while others may take longer. Consider the urgency of your transfer and choose a provider that aligns with your time requirements.
Sending Money Abroad
Whether sending funds to a family member living back home from overseas r conducting business internationally, an international money transfer lets you move money from your account from one country to another. There are several methods of transferring money abroad; you can use a bank wire transfer or an online mobile transfer.
When sending money internationally, choosing the exemplary service can save you both money and time. While banks offer online money transfer services, they often charge high fees and exchange rate margins that can eat into your transfer amount. Most banks and Remittance companies charge in either of these ways:
The fee (the obvious charge): A fee is charged per transfer; this can be a flat fee or a percentage of the transfer.
The exchange rate (the hidden charge): It's often difficult to compare the exact price, as some providers need to publish rates. So the final amount is often higher due to these hidden fees from the rates.
At Azasend, we take pride in our commitment to transparency. We believe you deserve to know exactly how much you're paying and what you're getting.
Compare Rates
Azasend offers several advantages for international money transfers, making it a preferred choice for many individuals and businesses.
Here are some reasons why Azasend is considered better for international money transfers:
Competitive Exchange Rates: Azasend provides competitive exchange rates for currency conversions, ensuring you get the best value for your money when sending funds internationally. It can result in significant savings compared to traditional banks or other money transfer services.
Low Transfer Fees: We offer low transfer fees, which means you can send more money to your intended recipient without incurring high transaction costs. This affordability makes it an attractive option for individuals and businesses that need to send money internationally regularly.
Speedy Transfers: We ensure fast and efficient transfers, enabling your money to reach the recipient promptly. While transfer times may vary based on the specific countries involved and any intermediary banks, Azasend strives to provide quick processing and delivery of funds.
Secure and Reliable: We prioritise the security and safety of your transactions. We employ robust encryption and security protocols to protect your financial information during transfer. Additionally, Azasend is a regulated and licensed money transfer service, giving you peace of mind that a reputable provider handles your funds.
Customer Support: We provide reliable customer support throughout the transfer process. Whether you have questions about exchange rates, transfer status, or other concerns, our dedicated support team can help promptly.
Getting Started with Azasend
Ready to join the growing community of satisfied customers and experience the future of remittance? Download our app today, sign up, and discover a faster, more innovative, and more affordable way to send money across borders with Azasend!
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