This article will explain what a currency exchange is, services provided by an exchange, and the impact of the internet on currency exchanges.
What is a currency exchange?
Simply put, to exchange currency means to exchange one country’s monetary legal tender for the equal amount in another country’s tender.
Every country’s currency has an exchange rate in relation to every other currency in the global market. This price relationship is called an “exchange rate”. This rate is determined by supply and demand.
There are three main reasons why someone would want to exchange currencies.
What services does a currency exchange offer?
1. For the tourist. When you travel to another country, you exchange your country’s currency with the local currency so you can buy in the local markets. How much money you get in exchange depends on the market relationship at the time.
Most currency exchanges adjust their rates on a daily basis, even though price fluctuations occur every second.
2. Foreign Business. Businesses who conduct commerce overseas will setup a bank account, or multiple bank accounts, to conduct transactions. If a businesses wishes to convert the local currency into another currency, the bank’s currency exchange function will handle it.
3. Investors/Speculators. Futures speculators can buy and sell foreign currency in an attempt to profit from the difference in two separate currencies. Investors use currency exchanges to hedge their market investments. An investor may invest in foreign companies and hedge those investments in the foreign currency markets.
The Internet’s impact on currency exchanges
The Internet has certainly made a huge impact on currency exchange operations. Instead of visiting a physical currency exchange location, tourists can exchange their money online and pickup the cash at a local business.
As for the currency futures markets, investors no longer hail from large institutions or banks. The retail investor-the guy sitting at home in front of his high speed enabled computer-can buy and sell currency at the click of a mouse. This has created an explosion in the currency trading industry.
Currency exchanges provide essential services to three types of customers-tourists, businesses, and investors. By using the latest technologies, currency exchanges are at the forefront of online financial markets.
