Currency exchange rate identifies the actual value of one countries money in terms of other countries money. For an example, an interbank currency exchange rate of 78 Bangladeshi Taka (BDT) to the United States dollar (US$) means that BDT 78 will be exchanged for each US$1 or that US$1 will be exchanged for each BDT 78. Currency exchange rate is controlled in the foreign exchange market, which is open for different types of buyers and sellers where currency trading is continuous.
In market, currency exchange rate is fixed for buying and selling. Buying rate and selling rate will be quoted by money dealers. Most of the traders are used local currency. The buying rate is that kind of rate where traders are buying foreign currency. The selling rate is that kind of rate where traders are selling the foreign currency. Different types of currency exchange rate can be indicated for notes, a documentary form like as traveler’s cheques, technologically credit cards punches.
Fig: Currency exchange rate display for some countries.
It is very important to everyone to know about currency exchange rate. Some time we need to exchange a number of currencies of any situation. For example sometime we intend to travel to one country to other country. We need to buy foreign currency in a bank in our home country where we can by foreign currency cash, travel card etc. The Currency exchange rate as well as fees and charges can vary significantly on each of these transactions, and the exchange rate can vary from one day to the next.
Currency exchange rate is varying in one country to other country for their different mechanisms. It manages the value of the currency. For this function, it determines the currency exchange rate regime that will apply to the currency. For example, the currency can be free-floating, pegged or fixed, or hybrid. Now a days, many countries government are trying to keep their currency remain a small range. For this reason, Currency exchange rate is going over-valued or under-valued.
Currency exchange rate in a market becomes changing whenever the values of either of the two component currencies rate are changed. The currency exchange rate becomes more valuable when demand for it is greater than the available supply. And also the currency exchange rate becomes less valuable when demand for it is less than the available supply. The transaction type of demand is highly related to a country’s business activities, Gross Domestic Product (GDP), and employment levels.
The Real Currency Exchange Rate (RCER) is the purchasing power of a currency relative to another at current exchange rates and prices. This is the number of ratio of a given countries currency exchange rate and also necessary to buy a market basket of goods in the other country.
Many countries are gaining more advantages in their international trades by manipulating the market for their currency to keep the value low. Many countries are trying to decrease their currency exchange rate for reducing the exports cost which is very helpful for removing their ailing economy. Low currency exchange rate decreases the price of country goods. For this reason, currency exchange rate plays a vital role in countries economic condition.