The foreign money rate is defined as the value of the currency of a country, as opposed to the currency of another country. Money rates are calculated on the foreign exchange market, which is available to a wide range of various categories of buyers and sellers, and here currency trade is continuous: 24 hours a day except Sunday. Considering that foreign exchange rates are dictated by the underlying interbank rates, one-rational inference is that the exchange rates will be the same everywhere. There are basically two types of market:
Spot market– A competitive stock system on which large sums of money are exchanged. A foreign exchange spot trade is a deal to acquire one currency while selling another currency at a certain price on a specified date.
Retail market-In the discount currency exchange market, one can consider a purchase rate and a sales rate. FX suppliers such as us can purchase a foreign exchange at the purchasing rate and pass it on at the sale rate. The disparity between the two prices is because of the cost of production.
Inter-city money rate variations
In a certain region, state or capital, the foreign currency of a certain nation could be cheaper due to very large migration of citizens resulting in high currency-influx. Moreover, the foreign money rate in the same city will vary dramatically across multiple currency trading channels such as banks, local money exchangers or an online marketplace.
That’s all because there are a host of local considerations that are applied to the pricing calculation aside from the foreign money rates on the international market.
- Low supply-Low demand issue-Though foreign exchange demand is picking up from Tier-II cities, net demand is still much lower compared to metropolitan cities. The low transactional volume makes local money changers or even banks in these cities charging higher mark-up fees making foreign money rate very competitive.
- Lesser demand-Seeing that net demand in Tier-II and III cities is very low, there is no surprise that foreign currency exchange places are fewer and lower.
- Area specific changes-Although the foreign exchange rate would usually be assumed to be higher in Tier-II cities relative to Tier I due to several factors as explained above, at the same time some currencies would easily be found to be considerably cheaper in some Tier II and Tier III pockets or regions relative to metropolitans. This pattern is primarily due to a given country’s region-specific migration of people.
EXAMPLE- It is mindful to note that a substantial portion of the Indian population has either moved permanently to Canada or worked on a working visa there. Around 50 per cent of the Indian-Canadian population originates from Punjab. There is a higher flow of Canadian dollars in Punjab relative to the rest of India, and you can probably consider CAD in Jalandhar cheaper than in Kolkata.
Tips to save money on foreign money exchange rates
- Go for a reliable marketplace for online currency exchanges, if possible, in your region.
- If not, search online interbank rates and take a rundown of fees paid by your bank or local money exchanger.
- Haggle for better rates if the money exchanger charges a large mark-up or transfer fee.
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Potential demand change is all dependent on previous values and market response of the person. Regulation also plays a significant part in currency exchange rate regulation. Often, when the government does not regulate the interest rate or the exchange rate, it contributes to surplus liquidity supply and this will allow the currency’s value to depreciate. Also triggering economic and financial crisis is causing depreciation of the currency. And if the economy is sound, currency would be high.