What Causes the Currency Exchange Rate to Fluctuate?
If you are traveling to any international destination, you have no choice but to know and understand the constant fluctuation in the currency exchange rate. You should not be surprised that exchange rates for all currencies change every day. If you would be more strategic, you can take advantage of such movements and buy currency at the best possible price.
To begin with, exchange rates normally and frequently change due to interrelated factors combined with the reaction of the market (consumers and businesses). This way, it is very difficult, if not impossible, to predict when or how much such rates would rise or fall. Here are common factors that cause this flux.
Law of supply and demand
In simple terms, when there is an oversupply of currency in a market, the value decreases. On the other hand, when there is a robust demand, the value increases. This way, a country’s central bank can influence the currency exchange rate by lowering supply of currency to increase its value or by increasing supply in circulation to lower it. This dynamics is called a government’s monetary policy.
The rate at how prices of goods and services in a market moves is called inflation. If a country has a high inflation rate, there usually is a depreciation in its currency. As a traveler, this could work both ways for you—your dollar could be worth higher when converted to a country’s currency, whereas you could also experience the downside because you might find costs in that area very expensive when you travel.
Are you familiar with credit ratings? Here’s the analogy: if your credit rating is good, you could easily make loans from lenders with very attractive interest rates; the same goes for countries—if an economy has a good credit rating, it can borrow from international funds easily. A country with bad rating may suffer from currency depreciation.
Political and economic stability
Travelers often monitor the political stability and security of their next travel destination. In terms of currency exchange rate, this kind of monitoring is also important. Countries with stable political climate have stronger currencies, while those with political turmoil undergo depreciation.
In all these factors, one thing is certain: you could not accurately predict how much the exchange rate is if you are buying currency for a scheduled trip to any country. This is how Xchange of America (www.xchangeofamerica) could be of service to you.
Before deciding on how much to buy, you could use its online currency converter to determine how much your designated amount of dollars would equate in the currency of your next international destination. From there, you could decide how much you could comfortably buy. Take note that rates may vary each day due to the market dynamics discussed here.
Whether the currency rate is favorable or less favorable for you, it will always be advisable to buy ahead of your trip so you could spare yourself from the stress and risks that may also be brought by currency fluctuations from any of such factors.