Forex rates are also known as foreign exchange rates or foreign currency rates. Agio is the more specific term used for an exchange rate in the field of commerce. It is the price at which one currency is converted or traded into other. There are two types of dealing or rates for forex. One is the interbank rate, it is the price at which one bank purchases or sells currency from/to another bank. This type of transaction is done in bulk. On the other hand is open market rates, this is the rate at which a currency buy/sell openly in exchange market or through brokers.
How exchange rates are determined?
This is the question which hit mostly in the mind of students and dealers. There is no specific body designated to determine currency rates. Currency rates are purely determined by demand and supply currency. How demand increases. Whenever some big event occurs in the history of current, it affects its demand. Demand can be increased or decreased through elections, scandals or war or international deal.
Need for exchange
Currencies are exchanged for several reasons. There are two big reasons for which currencies are exchanged, i.e., need to travel to desired country or investment. When one is traveling to another country, he/she has to exchange the currency to be used in the specific country. If a person is traveling from the USA to UK, he wants to exchange the money his Dollars into Pounds. This exchange is done through forex market or at the airport.
How to Read Exchange Rates:
Currency rates are normally written as
Here B is the amount needed to buy one unit of A. For example if USD/CAD is 1/1,0950, then it means 1.0950 CAD is needed to buy one USD. As per general mathematic rule if currency to be converted in is smaller then dividing rule will work. On the other hand, if the reqiured currency is larger then the rule of multiplication will work. The two currencies to exchange are collectively known as a currency pair. Traders and buyers sell and buy currencies for 24 hours a day. If one wants to buy any currency, he will have to pay in another currency.
It is a fact that when you go to bank or trade for exchange, then you will have to buy or sell at a price higher or lower than that of the market. This is because of they both want to keep the difference to earn market. The same action is seen through PayPal transactions or through credit card payments.
How to calculate:
One can calculate the exchange rate himself.For this purpose, he or she must know the rates.
For example, One USD Canadian dollar is equal to .74 USD, so if to convert 100CAD into USD he/she should multiply 100 into .74. On the other hand, if one has to convert 100USD into CAD he will divide 100 by 0.45.
However manual calculation may create confusion, so it is better to go foreign exchange or visiting online website, i.e., Google converter is one of the handy tool for Forex Rates Calculations.