With an increase in the frequency and volume of currency conversion, it makes sense to learn as much about it as possible. Learning about currency conversion will help you make better decisions about travel, cross-border transactions, and overseas investments. Foreign exchange has become a part of life for many people, from savvy investors and travellers to students who study overseas. They frequently need to receive or send money abroad. When doing remittance, currencies need to be converted.
Here are some fundamentals about currency converters:
What is a currency converter?
A currency converter calculates the value and/or quantity of one currency into another.
Cross Rate currency calculation
When converting currencies in a transaction where neither currency is domestic, you need to go for a cross-rate currency calculation. In this type of calculation, both currencies are compared with a third currency, rather than directly with each other. Most often, the two currencies are compared with the US dollar. To do a cross-rate calculation, you need four key data points:
Originating Currency: Identify the currency from which money will be remitted. Take down the three-letter currency code.
Amount: The amount in the originating currency that needs to be converted.
Target Currency: Provide the three-letter currency code of the country in which the money will be received.
Market Maker: Provide the market maker for the transaction.
Exchange Date: Currencies fluctuate in value very quickly. So, the date on which the transaction will take place has to be provided.
How do you calculate currency value?
The value of a currency depends upon the demand and supply. The currency value is calculated based on the exchange value of the said currency then. The value is usually set against American dollars. The currency value is provided by a currency converter. You can calculate the value of any currency vis-à-vis another currency and get the currency value.
What does a currency converter do?
A currency converter will provide the value of the currency that needs to be paid or invested into the currency in which the money will be received. A currency converter is developed based on updated data from the exchanges. The more updated the data, the better the quality of the converter. Currency converters also give you a trend chart for the various currencies, enabling you to make smart remittance decisions.
Why do currency value and conversions change?
As per the performance of a country’s economy, exports and imports, the value of the currency changes; for example, if the exports rise significantly on a day, the demand for remittance into the country will be more, and the value of the domestic currency will rise. This will result in a change in the value of the currency. Conversion changes are also different, even on the same day, at different points in time. This is because if either of the currencies in which the transaction is being done changes, the conversion rate will change. The currency market is dynamic; almost all currencies change slightly throughout the day. This conversion rate change becomes significant as the remittance amount becomes higher.
How can I convert my money to send it abroad?
You can send money abroad through cards, wire transfers, cheques, and automated clearing houses when looking to send money; you need to convert the money. Different platforms provide varying exchange rates for converting money. Go for a platform that is reliable and provides the highest conversion into the target currency. There will also be service charges and taxes. Deduct that from the amount to arrive at the value you get from an exchange platform.
Why do currency conversion rates differ between companies?
When making a currency conversion transaction, it is important to look at the gains you would make by going for a smooth customer experience and a good currency conversion rate. Currency conversion gives you the rate at which one currency can be converted into another. This rate does not include fees like the service charge to be paid to the bank, forex company, or online partner. Each of these agencies deducts its fee, which varies depending on many factors. Some companies charge more due to their traditional cost structures and the reputation they have built over a long time. Most agencies are into buying and selling a currency. They buy a currency at a rate lower than the foreign exchange rate and sell at a premium above the rate. Companies like Jupiter can offer a smooth experience and reasonable fees as they are driven by the latest technologies.
Can I convert Indian currency to any currency directly, or do I need to convert it first to the dollar and then convert it to some other currency?
You can directly convert Indian currency into the currency of your choice. There is no need first to convert it into dollars. A bank or agency dealing in currency exchange will provide you with a rate at which they will do the conversion for you.
Why do people ‘lose some money’ during currency conversion?
People lose money during conversion as it also attracts taxes. A fee is charged by the bank or company doing the conversion. Taxation may also apply depending on the transaction type and the countries’ rules.
What are the base currency and counter currency?
Whenever a currency transaction has taken place or is about to take place, two currencies are involved. The first currency is the one you are buying or selling and is called the base currency. The other currency being used to buy or sell the base currency is referred to as counter currency. For example, you want to buy euros for dollars. In such a case, it will be referred to as a buy EUR/USD transaction, the euro will be referred to as the base currency, and dollars will be referred to as a counter currency.