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How To Calculate Exchange Rates From Foreign To Local Currencies?

How To Calculate Exchange Rates From Foreign To Local Currencies?

12 Aug 2022

The concept behind calculating exchange rates and understanding foreign currencies is inevitable for expatriates. The term exchange rate refers to how much one currency can be exchanged for another. Millions of expatriates living in foreign countries often remain uncertain about the exchange rates when transferring funds back home. Knowing about these rates is a key factor for saving money on your cross-border transactions. For instance, if you send money to Pakistan or any other country from abroad, you must know how important it is to understand the local currency and how it relates to the money you have. 

Currency exchange rates constantly fluctuate every week as currencies are actively transacted. This causes the price to fluctuate, as it does with other assets such as gold or stocks. Exchanging foreign currency is a necessary practical task that all treasurers must master.

If you plan ahead of time, you can calculate your liabilities and choose the best method to use, preventing you from being charged unreasonable fees. Knowing how much your foreign currency's worth is a wise travel move that could save you a lot of trouble. So, let us go over the calculation of exchange rates in detail.

How Do Currency Exchange Rates Work?

Exchange rates indicate how much your money is worth in a foreign currency. In other words, it is the cost of purchasing another currency. Foreign-exchange traders set the majority of currencies' exchange rates. Every day, trillions of pounds are traded on the market.

Changes in exchange rates impact business, government, and individual decisions. This has an impact on inflation and economic activity as a whole.

A higher rate is better when sending or buying currency because you get more currency for your money. When selling currency, a lower exchange rate is preferable because it allows you to make a profit. 

Finding Exchange Rates 

Traders and institutions buy and sell currencies around the clock, seven days a week. One currency must be exchanged for another for a trade to occur. They keep the updated exchange rates posted on their websites and mobile apps. For instance, you can check the exchange rates for your desired currencies on ACE Money Transfer’s official website or digital mobile application.

A currency pair will be formed regardless of the currency used. When using Euros (EUR) to purchase GBP, the exchange rate is for the GBP/EUR pair. Any of the major forex brokers can provide access to these forex markets.

How Can You Calculate The Exchange Rate?

Foreign exchange trading determines exchange rates (forex trading). Forex trading is a global market for buying and selling currencies roughly 25 times larger than all of the world's stock exchanges combined.

Forex trading has small transactions like travelling abroad and exchanging your currency for the local currency. It also includes large transactions, such as when a company secures a future exchange rate. 

Forex trading occurs 24/7, which explains why the exchange rate for most currencies is constantly changing. Exchange rates are influenced because more money is circulating in different economies due to these trades.

Let's Understand From The Calculation

Currency conversion calculations may sound complicated at first, but they are actually quite simple. Here's a step-by-step guide to calculating exchange rates.

Let's begin with a simple example. Perhaps you are a British pensioner who lives in Spain but receives your £400 pension from the United Kingdom. In that case, you'd have to convert your Sterling to Euros every month. The exchange rate would look like this if you looked it up on the internet:

1 GBP = 1.12 EUR

This means that one pound sterling buys 1.12 euros. If your monthly pension were £400, you'd do the following:

£400 * €1.12 = €448.

A pension of £400 would be equivalent to €448 here.

On the other hand, maybe you have a rental in Spain and need to pay €500 exactly. So, how much British poundage would you require? In this situation, the exchange rate would be written in the opposite direction, as follows:

1 EUR = 0.89 GBP.

Repeat the previous calculation to find the Sterling cost of €500 * £0.89 = £445. To pay €500 rent in this country, you'd need £445.80.

Though the calculations themselves may be simple, that doesn't mean it's easy to avoid being taken advantage of along the way. Banks and money transfer services are notorious for offering exchange rates that seem significantly higher than the market rate.


How To Find The Best Exchange Rates?

To get the best way to send money abroad, you must first understand how to find the best exchange rates. There are several ways to find it:

Stay updated on the current rate

Because currency fluctuates due to supply and demand, prices change daily. Many factors influence a change in rates. When a currency is in high demand, or there is a supply shortage, the price rises. There are many reasons, including interest rates, economic forecasts, and employment rates. You can also sign up for email alerts for the best rates by registering with sites like ACE Money Transfer.

Start Early Analysis of Exchange Rates

Foreign exchange rates are difficult to predict; not only do prices fluctuate daily, but they are not uniform across the board. However, it is recommended that you check currency movements for at least one month before making a global money transfer.

Consider buying when the rate rises and your currency is at its strongest. Furthermore, avoid buying currency at the last minute and pre-order your money for a slightly better rate.

Understand The Mid-Market Rate

The mid-market rate, also known as the interbank rate, is the rate that sits halfway between global supply and demand for that currency and the rates used by transfer services and banks when trading among themselves. To compare any rates you are offered, use the mid-market rate. So, if you want to transfer funds to Pakistan or any other country of your choice, stay updated with the mid-market rates.

How To Send Money To Pakistan 

There are countless ways to seamlessly send money to Pakistan online from UK, Europe, Canada, Australia, Switzerland, and other countries. Still, these will be directly influenced by the provider you choose. Select ACE Money Transfer for the most convenient and secure transactions from anywhere. 

Let's look at how you can make an international money transfer to Pakistan via ACE.

  1. Create an account through the ACE official site or mobile app.
  2. Fill out your profile with basic information and any required documents.
  3. Select Pakistan as the destination, the desired payout option, and the recipient's information.
  4. Use your Debit/Credit Card or your Bank Account to complete the transaction.

You can watch a video tutorial on their website to better understand these procedures. 

ACE Money Transfer Mobile App

You can use the most popular money transfer app to send money to Pakistan online for pick-up in cash or to a bank account at any time and from any location. 

The ACE mobile app is an amazing resource for sending money, whether you are new to mobile transactions or an experienced user of your mobile device. It is also available for free in Google Play for Android and App Store for iOS users.

ACE Money Transfer Offers The Best Exchange Rates 

ACE gives you the power of the most up-to-date, reputable currency information and offers you secure, reliable, and simple-to-use products and services. It provides a professionally designed interface on its website and mobile app that is simple. 

ACE charges minimum transfer fees based on the type and size of the transfer. Furthermore, this money transfer website provides users with excellent exchange rate tools, some exciting offers, and supports multi-languages.

It's essential to know exchange rates, especially if you're making an online money transfer to Pakistan or another country from abroad, and how much your money transfer method will cost. This gives you an understanding of how much money your beneficiaries will receive after deducting the exchange rate and fees.

Final Thoughts 

It's simple to find exchange rate quotes, but calculations can be more difficult. Investors can use many online resources to help them calculate spot exchange rates. They can also learn the fundamental mathematics required to calculate exchange rates. 

This can save a lot of time and money, especially when dealing with large sums. ACE's transfer calculator can help you understand and calculate exchange rates and make secure international remittance transactions.

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