Converting money from one currency to another is more common than you may think. Imagine, every time you go on holiday, you're changing money you home currency to the foreign currency. This article will briefly describe what it actually means to convert money from one currency to another and will touch upon the different ways to do it.
What Does it Mean to Convert Currency?
Obvious answer right? Well, it is in a way but then it isn't. When you are converting a currency, you are dealing with two different instruments, which are valued against each other. This means that when you convert let's say GBP into USD, you are actually selling the GBP and Buying the USD. Did you know that when you do this, even if you're in your local travel agent converting 100 into USD, you're ever so slightly devaluing the Great British Pound.
When you sell the GBP the market sees this as, 'I don't want the pound, I want the USD'. As the demand for the GBP goes down, the value of the currency also depreciates. On the other side of the coin, when you convert your pounds into U.S. Dollars the market sees this as, 'I want the USD, not the GBP'. As a result of the USD appreciates as the demand for the USD appreciates.
So What Factors Effect Exchange Rates?
The simple answer is absolutely everything. Geopolitical, environmental, business transaction, traders, speculators, holiday makers, sovereign governments, central banks; you name it and it probably has an effect on the exchange rate.
The major influencers in the markets are not you or I who exchange our 1000 when we hop on a flight to Florida, but rather macro hedge funds, central banks, clearance banks and sovereign governments. Hedging against risk also can create billion dollar conversions which can influence the direction of the market up to half a cent or more, depending on the liquidity of the market at the time of trade.
How Does a Money Converter Calculator Work?
This is very simple with online money converter calculators. These calculators will usually have a drop down menu with currency selections. First, select the two currencies. Input the value of your base currency (the currency you want to get rid of), and then click convert. Voila, you then have an outputted value which is how much you'd receive at market rate. Do however realise that if you are converting your money at a money exchanger they'll usually take a 5cent (per dollar) commission on the price.
To get a market spot rate you'll need to trade the market through a Forex broker, but you can't use this as a solution if you want to go on holiday with the cash!
If you're looking to convert money or if you want a money calculator, visit Money Converter Calculator and have a tinkle on it; I'm sure you'll have a blast with it after reading this article, knowing you can be influencing the markets when you exchange your money.
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