Exchange Rates – Understanding the Basics

Whether you are a multinational business that has complex currency requirements or an individual investing abroad in the latest property hotspot, it helps to have a basic understanding of exchange rates. But if you've never had to deal with foreign exchange rates before apart from the odd trip abroad, it's good to start with the basics.

What are exchange rates

Put simply, each country has its own legal tender, and you need to exchange your home country's legal tender with the country's legal tender that you are doing business with. For example, if you are going on holiday to America, you'll need to exchange pound sterling for US dollars. The exchange rate is simply the cost of the unit of currency used in one country expressed in the currency of another country. 

So if you are a UK resident going to or doing business with America, you will want a quotation on how many US dollars you get for your UK sterling.

Expressions used for exchange rates

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  A direct quotation is where the exchange rates are expressed in terms of the home currency. So, for example £0.6960 = $1
  
  
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  An indirect quotation is where the exchange rates are expressed in terms of the foreign currency. So, for example $1.4368 = £1
  
  
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  Cross exchange rate Cross exchange rates are the value of one foreign currency expressed in another.

Exchange rates change according to the world economy, so it's important you keep up to date on economic news to make the most of the best exchange rates. Also, you can pay more for your foreign currency depending on where you buy it. If you go through a bank, it is more costly than going through a specialist foreign exchange company that can obtain wholesale exchange rates directly from the market.

The impact of exchange rates

Exchange rates can make a huge financial impact, especially if you are dealing with big sums of money. Put simply, if you are a British tourist travelling to America, you'll be glad that recent reports say the current exchange rates are $2 to a pound. The stronger the pound is the more dollars tourists can buy and so the further their money will go in the US.

Foreign Currency Exchange Ltd is a commercial currency brokerage based in the UK. We help thousands of clients move hundreds of million pounds across the globe every day. From large businesses to private individuals who wish to send regular payments abroad, you can save money with us by getting better currency exchange rates than with your bank. The Foreign Currency Exchange buys currency at wholesale rates and can help you save money with our fast secure service. For more information contact us now, telephone +44 (0) 20 7989 0000 or email info@fcexchange.co.uk