An exchange can be considered as a open marketplace which is very well organised and
hereby the buyers and the sellers negotiate price. The process of exchange require the real
time bid and this also contains market wide price communication and determination. Now
comes the concept of exchange rate when the nation’s price is compared in regards with other
country. Domestic currency and Foreign currency can be considered as two basic components
of exchange rate. These are quoted against U.S dollar. In this the foreign currency is the base
currency and the another one is the domestic currency. These currencies are majorly
expressed after 4 decimals. These can floating or fixed. A floating rate is that which is
categorized as market price which is determined by the market forces. Fixing the rates results
in volatility and betterment of the trade relations. Now comes the arena that how foreign
currency exchange works?
The foreign rate fluctuate as the global economy is active twenty-four hours per day.
Financial investors are constantly buying and selling large lots which leads to increase and
decrease in currencies. This leads in exchange rates between two currencies. Most commonly
it can be dealth against U.S dollar, pound sterling, euro, swiss , franc etc. These are
considered to be most stable and widely used currencies for large business transactions. The
best currency rates can be found in ATMs or local banks. Many foreign banks are happy to
exchange the currencies for the better rate. There are many factors effecting or influencing
the exchange rate and these can be categorised as the interest rates , the higher the interest
rates the hot money flow rate encourages . Now comes the economic growth which tends to
appreciate the currency. The inflation, the higher the inflation, it makes the exports less
competitive and less demand for the currency .This can lead to depreciation. Confidence in
the economy or the currency effects the exchange rate. The currency will be appreciated
when there will be more increase in the exports. If the appreciation is due to speculation, then
it will have harsh impact on the growth.
