If you’ve ever traveled or done business overseas you’ve almost certainly done a currency exchange in the past. Did you know that you can have your own foreign currency bank a/c and change your money online at rates much better than your bank will give you ?
Here we show you how to target an exchange rate for your foreign exchange just like a professional Forex trader, so that you get the best possible rate, and we take you through all the basics you need to know about currencies and dealer quotes.
When you first begin to deal with foreign currencies some of the terminology can be confusing, not to mention how it all works, so let’s try to make it much clearer.
A currency is simply the type of money which is accepted as legal tender in any particular country. E.g. in the United States it’s the US Dollar, in the UK it’s the Great British Pound, and in the 16 countries of the Euro Zone (e.g. France, Germany, Italy, Spain etc) it’s the Euro.
All of these currencies are “floating” against each other in the international money markets and will rise and fall in value relative to each other, usually as a result of events in international business.
In business terminology foreign exchange is called Forex or FX for short. In the currency exchange markets each currency is known by a unique 3 letter abbreviation. Those which you are likely to see most often are the following;
USD United States Dollar
GBP Great British Pound
JPY Japanese Yen
CAD Canadian Dollar
AUD Australian Dollar
CHF Swiss Franc
SGD Singapore Dollar
NZD New Zealand Dollar
ZAR South African Rand
Foreign Exchange rates (Changing money from one currency into another)
To begin to understand how foreign exchange rates are quoted and what they mean, let’s begin by looking at a currency exchange transaction you will probably have done at some point in your life.
When you conduct a foreign exchange transaction (e.g. sending money to your folks back home) the dealer you conduct the transaction through will show the value of one currency against another expressed as a BUY rate in a currency pair.
E.g. GBP/USD 1.6543. This exchange rate means that 1 GBP (British pound) will buy $1.6543
Don’t be confused by how many digits appear after the decimal point. This simply allows for very large transactions.
So, for example if you are a UK tourist thinking about your holiday spending money for a trip to the US the above rate will simply mean to you that 1 GBP will buy you $1.65 (We’re looking purely at the currency exchange rate here, and ignoring any fees the dealer may charge).
If you’re planning on doing some serious spending on your trip to the US the above exchange rate means that 1,000 GBP will buy you $1,654.30
Hopefully that’s fairly easy to understand. So, here you’ve been able to see that the first currency shown in a currency …