In the advent of globalization, “the name of the game” is not money alone. Can we include currency exchange? In historical times, the mode of exchange is by bartering a valuable object with the desired other object. Currently, this may exist informally but vaguely, an item for sale would more or less be worth a sum of money.
But as the world transactions come in complexity, where the value of an economy is determined by the amount of its reserved wealth, money is a very broad traffic in commerce and all walks of living. Currency exchange comprises the biggest transaction in the world market. Each country has adopted its own unit as home currency, but with their independence from each other, they differ in economic standing based on many factors. The worth of their currencies against the other is the EXCHANGE RATE. Foreign Exchange goes with the acronym FOREX.
To understand the value of home currency, it is always comparable with another currency foreign to it. The most common way of expressing it is by Price Currency. A very simple example figure is this:
1 US Dollar ($) = 0.69 British Pound Sterling
The fluctuation of a currency is solely based on the demand of its supply. The more transactions are made with it, the more it becomes valuable. If there is less demand for the currency, it devalues fast, thus it will have an impact on its rate value. Primarily, this is observed generally in terms of country’s economic standing. If its people have the most employment, there are more needs for commodities and supplies that businesses are revolving as well as it use of money. Once currency is valuable, the interest rate is high which can also attract other investors to take chance on buying it.
A powerful currency would mean consistent price rate that does not devalue in a long period of time. In playing the game with foreign exchange buying, sometimes it is difficult for banks themselves to control those who manipulate them into selling the reserves, which in a way have impact on the country’s financial status. Several scenarios make a great decline of currency value like political uncertainties, unemployment that leads to higher inflation, other relevant issues that can hamper commerce and business from functioning well, and other macro-economic situations.
So far, the five most traded currencies in the world are the following:
- US Dollar
- Japanese Yen
- British Pound Sterling
- Swiss Franc
EURO, a new currency that hit the market after its birth in 1999, is almost speculated a threat to US dollar. And yet the latter (US$) is still the highest with its 89% rate of world transaction, which dwarfed the rest to the fraction left. Still, no matter how insignificant a certain currency may be, the monetary flow is a big volatile traffic that literally flows like liquid around the world though it may seem unnoticed.
It may appear that Foreign Exchange Retailing seem to have “the edge” in terms of acquiring currencies, but actually, it turns out that there should be ways of marginalizing these businesses to balance the flow of currency exchange, which in a big overview, these retailers may take hidden charges for their own gain.
Without noticing, it is clear that no matter how small transactions are, negotiations play a big part on currency exchange jam, which any civilized world has embraced for centuries.