How do exchange rates work?

Exchange rates are the most important part of a country’s economic performance.  Each country relies on another country via trade. For instance, Indian economy cannot be stable without trading with other countries like UK, China, Africa and America.  Interest rate plays a vital role in making an international payment. Interest rate can have a big impact on currency value. In general, interest rates are charged by the central bank. If the central bank in a country invests higher interest, it will offer more deals and attract foreign countries. For instance, if Japan central bank is providing high-interest rates, then other countries like UK and US will be more likely to invest in Japan. Hence, the exchange rate will increase due to rise in currency rates. So, you can easily convert Thai baht to euro currency these days.

Do you want to know how exchange rates work? If yes, you are in the right place. Well, exchange rates are not fixed and it fluctuates often. Exchange rates will vary depends on the current marginal rate which is determined by the foreign exchange rate. It also varies depends on the interest rates and currency rates.  Sometimes exchange rate can be fixed. This type of fixed exchange rate may fluctuate often and make a big impact on different rates.

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  • Travelers – if you are a traveler, you need to spend more time to trade your currency.
  • Locals– if your country has strong foreign currency system, you can see importing items get cheaper and exporting items get expensive.
  • Importers – If you import any goods into your country, you will have to pay more due to the increasing exchange rates. This is also applicable for exporters.
  • Investors – Investors can have a chance to see the profit when there is a drop in currency exchange values.

Pegged rates are another type of exchange rates, which can be maintained by the government. As this is handled by government service, prices will be fixed against the major currency like Yen, US dollar, Euro etc.  There is a lot of online exchange service out there and if you want to change Thai baht to euro currency, you can choose the best exchange service, providers. In order to maintain a fixed rate, they will have to reserve a specific amount.  This pegged rate purely depends on the floating peg system and it is handled by government.

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