17 December 2020
Understanding Currencies: 4 Factors That Affect Exchange Rates
Sending money internationally has become an easy, quick and cheap process thanks to online platforms. Often, all users need is a smartphone or computer.
However, behind the scenes there are several factors that affect how much money is received, and much of this has to do with exchange rates.
You may already have a basic understanding of exchange rates, but just in case you don’t, here’s a short and simple definition:
An exchange rate is the difference in value between one currency and another when switching between currencies.
That means, when sending money internationally or switching between currencies to go abroad, you will likely end up with a different amount when you make a transaction.
Check out our currency converter here, then read on to find out some of the factors that affect exchange rates:
If inflation in one country may be relatively lower than another, people from that country can buy more goods with less money. Lower inflation rates tend to equate to a rise in the value of a country’s currency.
2. Interest rates
If interest rates rise relative to another country, it becomes more attractive to have money in that currency as you may get a better return in that country. Higher interest rates mean that a currency increases in value.
3. Value predictions
If people think that one currency will rise in value in the future, demand for that currency will go up, which will increase the value of the currency now. Increase in demand in a particular currency will cause the value to rise.
4. Relative strength of other currencies
If one currency is doing particularly well, other currencies may drop in value. That means, if you’re sending money from a country that is doing economically well, you’ll get more for your money.
Making the most of money transfers and currency exchange rates
Before you send money or change money to another currency, you may want to check to ensure you are getting a good deal. If not, you could end up spending more than you’d like to, and you and your loved ones won’t get the full benefit of transferring money internationally.
The four factors above should be taken into consideration, but it can sometimes be difficult to stay on top of rate fluctuations. However, if you choose the right provider for your international payments you may save yourself a lot of money with little effort.
Paysend helps users to make the most out of their money by providing excellent and competitive exchange rates for all customers that send money abroad. We’re experts in what we do, and always try to get you amazing deals on foreign currencies when compared to well-known banks.
Paysend Global Transfers is an international money transfer platform with over 2 million users. Before you send money abroad, click here to check exactly what your recipient will get using Paysend according to the current exchange rates.