Currency Exchange Rates

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Types Of Exchange Rates And Their Benefits

Currency Exchange Rates? If anyone wishes to purchase any property overseas, one must consider doing thorough research before that. Hence, Initially to begin with the property laws of the country followed by investigating. Also finding specialist currency broker and also using spot contract facility. So for fixing exchange rate well in advance with the transacting bank.

So, There are various ways in which exchange rates expressed:

1. Spot Exchange rates? Hence, This exchange rate is driven by FOREX market on the basis of demand and supply of the currency. Hence, This exchange rate is derived from actual exchange rate based on the current market value of the currency.

2. Effective Exchange Rate Index (EER)? Hence,  This a weighted index based on sterling’s value where many international currencies. Weighted in proportion based on trade between the UK and each country and then the rate decided.

3. Forward Exchange Rate? So the Forward rate is based on forecasting models determining the value of any currency at a futuristic value. In addition, This exchange rate used by the companies and banks for buying foreign currency with reduced risk of future market fluctuations.

4. Bilateral Exchange Rate? So, This a simple method where the value of one currency determined by its trading value against another currency.

5. Real Exchange Rate?  The real exchange rate is domestic price index ratio between two countries. Also, Any rise in the real exchange indicates aggravation of international competitiveness for a country.

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Therefore, There is a difference between the exchange rates in banks and counter when one wants to travel cash. So Cash counters give less money while interbank transfers give a better rate.

So, Benefits of exchange rates lie both for the country’s economy and the trader. Also, While traders can earn good money, countries use it to create more of a favourable economic environment by manipulating large reserves of foreign currency.

Consequently, This helps then to manipulate exchange rates and stabilize the foreign exchange rates. So More the country’s foreign reserves, the better the country can defend itself from tentative attacks on the domestic currency.

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