Currency transfer companies are getting bigger and bigger, because not only the economy is constantly chancing, people are smarter with thier invesments nowadays.
What is the Meaning of Exchange Rate
Looking at the definition of exchange rate; It is the name given to the coefficient of value of a country’s currency against a foreign country’s currency. Currency tranfer comparison is a big part of the exchange rate.
There are two options for transactions to be made with foreign currency, which is one of the most preferred investment instruments used in international trade, as the buying rate and the selling rate. This concept is the backbone of the currency transfer companies.
Precious Metals vs Currency
It uses gold or any other precious metal standard to determine the value of currencies that adopt a fixed exchange rate regime. Depending on the depreciation or gain of the measured value, the value of the currency also changes. There are currency transfer companies that can exchange gold and other metals.
For example, in 1968, the US Treasury Department determined the buying and selling price of gold as 35 dollars per ounce. Many countries determine the value of their local currencies and currency transfer against the dollar, based on the ounce price of gold specified by the US Treasury Department.
Floating Exchange Rate Regime
In the floating exchange rate regime, the price of the local currency is not determined over a value. Today, the price of the local currency of many countries is determined by the floating exchange rate regime. The floating exchange rate regime is the method in which the local currency is positively or negatively affected by the economic decisions of the country’s government or the central bank. Currency transfer companies has to be aligned with this regime.
The floating exchange rate regime began to be implemented after the 1910s. Until the 1910s, the only method of determining international exchange rates was the value of the currency against gold. In the 1930s, a standard similar to the gold equivalent value system applied before the 1910s was introduced.
Thanks to this system, all countries were not calculating the value of their local currencies in terms of gold, but from exchange rates such as the US dollar and British pound, which were accepted as gold standards. In the 1970s, the USA ended the fixed exchange rate regime and thus the IMF’s task of stabilizing the exchange rate came to an end. Transferwise currency converter and many others are benefiting from this regime.
How Are Exchange Rates Determined
The shrinkage of gold reserves resulted in the US abandoning its gold-based control standard, and the international monetary system began to be indexed to the dollar and other exchange rates. The rates doesnt usually change whether its between currencyfair vs transferwise or any other application.
Governments maintain price stability against the exchange rates of local currencies by reducing their imports and increasing their exports. Governments can also devalue local currencies against exchange rates, thereby increasing the currency’s status by selling their currency to other countries. Thanks to the floating exchange rate regime, countries are encouraged to trade.
It is important for currency transfer companies in foreign trade, for example, if exports, goods sold by a country to another country, increase, foreign currency inflow to the country increases. Due to the increase in foreign currency inflow, the foreign exchange supply increases. When the supply of foreign currency increases, the exchange rate decreases. In other words, the exchange rate is inversely proportional to the foreign exchange supply. Due to the decrease in demand, the local currency depreciates.
Inflation and Political Stability
Not only due to inflation, but also domestic and foreign interest rates affect the exchange rate and currency transfer companies. In periods when interest rates are increased, depreciation of the country’s currency is observed, while in periods when it is lowered, value increases are observed.
Another factor in determining exchange rates is political stability. If the political environment in a country is tense, both financial investments, stock market, etc. and tourism will be adversely affected.
If the country’s economy is in good shape, if there is production, if there is growth, if the budget deficit is good, the country’s currencies are more demanded.
Changes in exchange rates mutually affect many economic variables. Both these economic variables and the changes depending on the exchange rate ultimately affect our livelihood and best currency transfer services.
What is the Definition of Parity
Parity; It is the name given to the value of two different currencies against each other. Frequently used in currency transfer companies. Parity pairs are; It contains the symbols of two different currencies accepted in the international money market. To give an example; Euro and US dollar parity is expressed as EUR/USD.
Supply and Demand of Foreign Exchange
The main factors that determine the supply and demand of foreign exchange are as follows:
- Applied monetary and fiscal policies
- Economic infrastructure
- International developments
In addition, the Central Bank is also in charge of storing and managing our country’s gold and foreign exchange reserves. international reserves; It refers to assets that are generally controlled by the monetary authorities of the countries, are ready for use, have the ability to be converted into other currencies (convertibility) and are accepted as an international payment instrument. Applications like transferwise currency can not be used when we are talking about this kind of scale.