Currency Exchange

EconomyWatch
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Currency exchange is the process of exchanging the currency of one country with that of another. It can be carried out between a domestic currency and a foreign currency or between two foreign currencies.

Need for Currency Exchange

The reasons for currency exchange include:

  • To facilitate trading on the foreign exchange (forex) markets.
  • While traveling.
  • When a remittance has been received from a friend or relative living abroad.
  • When a business is paid for its products or services in a foreign currency.

    • Currency Exchange: Modes

    Currency exchange can be carried out:

    • At bank branches and post offices.

    • At bureaux de change establishments found at airports, railway stations, department stores and near tourist sites. The exchange rates in such places are fixed, although the commission rates are negotiable.

    • Through online order of travelers’ checks. These are the safer instruments of currency exchange as they can be cancelled if stolen or lost and the funds are restored.

    • By ordering travel money and currency exchange online.

    • By using the travel FX card, also known as a foreign currency card or cash passport. It functions as a prepaid card onto which the money is loaded and allows for a top up. It can be used as a regular credit or debit card.

    • By availing the services offered by commercial foreign exchanges while moving large amounts of currency. They specialize in dealing with the best currency rates available.

    Currency Exchange: Benefits

    Investing in currency exchange has the following benefits:

    • Investments in financial products are vulnerable to recessionary pressures. However, currency exchange is more immune to recession as the currency of one country can be exchanged for other currencies under any economic condition, enabling investors to earn profits even during recession.

    • Due to the global reach of the foreign exchange market, an investor can withdraw his investment anytime without much restriction. This is because selling is unrestricted and buyers are easily available.

    • Currency exchange can be carried out online 24 hours a day and five days a week.

    Currency Exchange: Limitations

    Currency exchange has the following limitations:

    • Currency exchange does not work effectively under financial turmoil, economic collapse and social unrest. Under such circumstances, the recovery of your investment in currency involves carrying out a number of successive transactions.

    • Currency exchange investments are vulnerable to speculation in the forex market.

    • Investment in currency exchange needs to be monitored closely and continuously, as currency values fluctuate constantly.

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