What Are Exchange Rates?

Exchange rates tell you how much your currency is worth in a foreign currency. Think of it as the price you are charged to purchase your chosen currency. Sounds simple but many consider FX trading to be overly complex, particularly with terminology such as ‘market rates’ and ‘spreads’ circulating.

How Do They Work?

There are a vast number of political and economic factors that affect the worth of a country’s currency, from inflation to interest rates, and government policy itself. This means exchange rates are continuously changing. Yet foreign exchange traders, who trade currencies 24 hours a day, seven days a week, noticeable trends in rates rising and falling will develop. Such insight can result in incredibly accurate currency rate estimates. And this is why foreign exchange traders ultimately decide the exchange rates for most currencies.
So, how can you make exchange rates work for you? Here we explain the 4 ways in making foreign exchange rates work in your business’s favour…

1. Choose a Competitive Transfer Provider

Despite being able to deliver guidance and access to valuable tools to help shield you against fluctuating rates, choosing an uncompetitive FX provider could mean paying excessive charges. Rates can vastly increase the costs of sending money across international borders. Choosing a competitive transfer provider will ensure you benefit from the best possible rates.

2. Send Funds Quickly with Spot Contracts

Spot transfers are quite possibly the easiest method to transfer money across borders. So, if you’re looking to make an international payment fast, spot contracts allow you to deliver the funds quickly.

Often, when transactions must be completed right away, a rate can be agreed with your dedicated FX specialist there and then. They can then settle the transaction either on the day of the trade or over the coming days depending on your requirements.

The rate will usually consist of the interbank rate combined with the spread cost, but these will vary depending on which currency provider you approach.

3. Plan Ahead by Buying Forward

Flexible options on buying Forward gives you freedom and peace of mind during the life of the contract, so if you want to secure a rate but aren’t yet ready to make a transfer, you can choose a forward contract to fix a rate for a specified date in the future. The brilliant thing about forward contracts is that you know precisely the amount you will receive when you’re ready to transfer. The benefit is that it helps you plan, and ultimately protects you should rates move against you in the future.

4. Tackle FX Markets with Greater Confidence

UK businesses ideally need to confront foreign exchange markets with a greater level of confidence, the incentives of doing so are evident, and with an informed, timely and responsive strategy in place tackling foreign exchange markets is something every company in the UK can attain, particularly with the help of a foreign exchange specialist provider.

Is it Time You Took Advantage of Market Movements?

At Central FX, we have a team of FX Specialists here and ready to help. Their know-how will help you work out how to reduce your risk and take best advantage of market fluctuations within any fixed timescales you have. Contact Central FX today for more details.