What Are Money Exchange Rates

By: Mel Joelle


Exchanging currency, or money exchange rates, can be a strange concept to someone who has never traveled abroad before. Understanding this idea, though, is the key to making sure you are not the victim of a scam while you’re traveling.



To start, it is important to understand that every country has their own unique currency that is issued by their government and/or central bank. In the United States this currency is dollars, but in Mexico the currency is the peso. Each country’s currency also has its own unique value. For example, about two dollars will buy a loaf of bread in the United States, but it will take about one British pound to buy the same loaf of bread in England.



There are many reasons why the value of currency can vary. Since each currency is issued by a different country, the stability and creditworthiness of the government can have a big effect on the value of a currency. For example, a country with a very unstable government will have a currency with a relatively low value. This is because when a government collapses, often the currency has no value at all. The total amount of currency issued, the stability of a country’s economy, and whether or not the currency is tied to a commodity (typically gold) can also affect its value.



A currency with low value will not be able to buy as much as a currency with a higher value. As currency becomes less valuable, it takes more of it to buy an item. This is why rampant inflation is common in countries with low stability. The wide variety of economic and government situations has created a wide range of currency values across the world.



This wide range of currency values is the reason why there are currency exchanges. The value of each currency is determined by each bank or money exchanger, but most follow the examples set by the central banks of a few major countries. The exchange rate is based on the relative value of each currency. Because this value is determined by so many factors that are constantly in flux, it is very common to see exchange rates fluctuate every day.



Typically, a bank or currency exchanger will produce charts showing the daily exchange rates for several different currencies. For example, exchange rates for the United States dollar might be listed for at least ten or fifteen different currencies. A person wishing to exchange money should multiply this rate by the amount of currency they wish to exchange.



For example, assume the exchange rate for dollars to pesos is 10.2. A person wanting to exchange 1000 dollars into pesos would need to multiply 1000 by 10.2. This means that he or she would receive 10,200 pesos from a currency exchange. If he or she wanted to exchange the pesos back into dollars, he or she would just need to either find the exchange rate for pesos to dollars or divide the number of pesos by 10.2. To find out more about exchange rates be sure to contact LucrorFX today.

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