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Summary by : danieltanyb

Visits : 12 words: 600 Published: April 18, 2008

Foreign Currencies and Exchange - Quantum of Sorrows and Anxiety

In today's globalised society, people and goods travel freely between countries and boundaries. A parent in China may be paying for their children's university education in the Ivy League Harvard University in United States Dollar or the greenback which will involve exchange conversion from Chinese Renminbi. A tourist from United Kingdom may be on overseas holiday in the island of Goa in India where the local may only accept Indian Rupees for payment. Foreign currencies payment can be in the form of cash/bank notes or through bank issued visa/master credit cards. The major currencies that are accepted worldwide include the US Dollar and the Euro.

Foreign currencies exchange involve an exchange rate between a foreign and local currency. There may also be a two way bid and offer rate. For example if the exchange rate between one (1) US Dollar and Renminbi is seven (7) it means that 1 US Dollar is equivalent to 7 Chinese Renminbi or the Chinese Yuan. If a China-made laptop retails for Renminbi 7,000 then the US Dollar conversion amount would be USD 1,000 (7,000/7). Conversely if a Chinese tourist in New York buys an Apple ipod for USD 100 the Renminbi conversion amount is 700 (100*7). The foreign exchange rate appreciates and depreciates on a real-time basis and consumer may check the exchange rates with banks or money changer.

The foreign exchange rate has a financial impact on our daily lifes. Foreigners sending their children for overseas education in western countries worries about big appreciation in foreign currencies exchange rate. A non-US consumer buying items overseas through the internet website such as EBay has to pay the US dollar equivalent in local currency. Making investment in foreign properties and stocks involve currency conversion. When travelling abroad the local may only accept payment in the local currencies. The local currencies can commonly be exchange at hotels, banks and money changer. For payment through bank issued credit cards, the billing would still be base on the local currency equivalent of the prevailing exchange rate.

A sudden and big change in exchange rate, known as devaluation and revaluation, can have a big financial impact. In the recent Asian financial crisis where many Asian currencies such as the Malaysian Ringgit, Korean Won, Indonesian Rupiah and Thai Baht depreciates sharply and suddenly against the US Dollar causing the local people and economy to suffer from the effect. Goods bought from overseas became expensive and borrowers that borrow in foreign currencies such as US Dollar struggle with the repayment with the falling exchange rate. A rapid and big change in foreign exchange rate is usually a sign of some instability.

Thee foreign currencies exchange rate has become an integral part of our daily life in today's globalised society. Even if a person remains in their home country the foreign exchange fluctuation would still has financial impact in the form of foreign imported good and services. A frequent traveller would be more accustom to the frequent foreign exchange fluctuation. There are investors who may attempt to achieve financial gains by speculating on the foreign exchange movement. However, it may be wise just to understand the impact of foreign exchange rate as it is increasingly important in today's globalised world.

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