Yes, currency exchange rates! I’m sure you have heard of this term if you are an international investor, remitter or an overseas traveler.
But if you are new to international money transfers and needs to know more about exchange rates, you are on the right page.
Foreign exchange rates or Forex is the value of money you will receive on the other end for the money transferred. The process is quite simple- you are selling a currency to buy another. So in this money exchange, you are obliged to know the exact value of money you will receive on the other side of the loop.
Before going into the concepts of reading and calculating exchange rates, let us start with the basics.
What is a currency pair?
Currency pair is one currency placed against the other, for example, AUD/INR. Here, the Australian dollar and Indian Rupee become a currency pair, in which AUD is the base currency, and INR is the term currency or quote currency.
The pair denotes how much of the term currency is required to purchase the base currency (the base currency in a single unit).
Sounds confusing? Don’t worry, you will understand it clearer with an example. For instance, let us imagine:
The exchange rate of AUD/INR = 60
(Base Currency/Term Currency = Exchange Rate)
What does that mean? It means that 1AUD = 60 INR, that is, you need 60 Indian rupees to purchase one unit of the Australian dollar (base currency). Thus, if you want to send money to India from Australia, the equation goes:
Base currency × 60 = Term Currency
If you want to send 1000 Australian dollars, the recipient gets 60,000 rupees:
1000 AUD × 60 = 60,000 INR
From this equation, you can also figure out how much Australian currency you can purchase with the Indian rupees, in case of travelling or investments:
Term Currency/Exchange Rate = Base Currency
60,000 INR / 60 = 1000 AUD
I guess you have got a pretty clear idea of how to read and calculate foreign exchange rates. It is quite simple when you look at it this way, but always keep in mind that exchange rates are always at fluctuation and they don’t come as whole numbers like 60, they come in decimals (63.45) making your calculations more complicated.
Your calculations could go wrong if you are not a prolific mathematician, so why take the risk?
After all, it’s the matter of money, and slightest change in exchange rates can make a huge difference in the final amount. Thus, use any of the online sources to do the calculations or at least use them to double-check your calculations.
