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The Impact of Exchange Rate Fluctuations on Remittance Prices when Sending Money to Pakistan

22 Jun 2023


When you have to send money to Pakistan from overseas, one factor you simply can't ignore is the effect of exchange rate fluctuations on remittance prices. But why is this so vital? What exactly are the implications? Let's dive into the intricate relationship between remittances, exchange rates and how they shape the economy of Pakistan.

 

Understanding Exchange Rate Fluctuations

 

Definition and Factors Influencing Exchange Rate Fluctuations

At its core, an exchange rate is the price of one country's currency in terms of another's. It's a highly volatile number, affected by various factors like inflation rates, political stability, economic performance, and speculation. Exchange rate fluctuations are these variations that happen over time.

 

Role of Exchange Rates in Remittances

Now, you might be wondering, "How does this connect to remittances?" When you send money overseas, you're essentially buying another currency. And like any other product, its price (the exchange rate) can rise or fall.

 

If the exchange rate of the recipient's currency (in this case, the Pakistani Rupee) appreciates against the sender's currency, it becomes more expensive to send money to Pakistan. For example, if the exchange rate increases from 1 US Dollar to 100 Pakistani Rupee to 1 US Dollar to 105 Pakistani Rupee, the cost of sending 1000 US Dollars will increase from 100,000 Pakistani Rupee to 105,000 Pakistani Rupee. In this scenario, the recipient will receive fewer Pakistani rupees for the same amount of US dollars, and the cost of sending money to Pakistan has increased.

 

On the other hand, if the exchange rate of the recipient's currency depreciates against the sender's currency, it becomes less expensive to send money to Pakistan. For example, if the exchange rate decreases from 1 US Dollar to 100 Pakistani Rupee to 1 US Dollar to 95 Pakistani Rupee, the cost of sending 1000 US Dollars will decrease from 100,000 Pakistani Rupee to 95,000 Pakistani Rupee. In this scenario, the recipient will receive more Pakistani rupees for the same amount of US dollars, and the cost of sending money to Pakistan has decreased.

 

Remittance: A Lifeline for Many in Pakistan


Importance of Remittance in Pakistan's Economy

In countries like Pakistan, remittances play a significant role. They help families cover basic needs, contribute to savings, and spur investments, playing a vital role in the country's economic stability. Pakistan received $31.2 billion in remittances in FY22, which made almost 8.69% of its GDP, expressing the critical value of remittances for the country. Every money transfer to Pakistan from abroad not only helps several families run their households but also adds to the country’s economy.

 

Who Sends Remittances and Why?

Mostly, these funds are sent by expatriate Pakistanis who have found better economic opportunities abroad but have loved ones back home. Their remittances act as a financial lifeline, especially in hard times. According to the Ministry of Overseas Pakistanis, more than 9 million Pakistanis reside in foreign countries, most of whom work and earn there to support their families back home.


The Impact of Exchange Rate Fluctuations on Remittance Prices

 

How Exchange Rate Fluctuations Affect Remittance Prices

Imagine sending money to Pakistan when the exchange rate is favourable - your loved ones receive more Pakistani Rupees per Dollar. However, when the exchange rate is less favourable, the opposite happens. Hence, fluctuations can either be a boon or a bane, depending on which way they swing.

 

Case Studies of Exchange Rate Impacts on Remittance Prices

Let's put this into perspective. In 2020, the Pakistani Rupee depreciated against the US Dollar. This meant that remittance recipients got more for every dollar sent, hence more purchasing power. But when the rupee strengthens, as in early 2021, each dollar sent home buys fewer rupees, leading to a decrease in the recipient's purchasing power.


Strategies to Mitigate the Impact of Exchange Rate Fluctuations

 

Picking the Right Time to Send Money

An effective strategy to deal with exchange rate fluctuations involves timing your remittances with market conditions. This requires monitoring exchange rates and sending money when rates are favourable.

 

Choosing the Right Service Provider

Selecting the service provider is one of the most critical steps since money transfer prices and exchange rates vary greatly for different providers. For instance, typically, banks use static exchange rates with relatively higher transfer costs, leading to lower amounts sent to the end-user, i.e., the beneficiaries of remittances. If you send money to Pakistan online via a trusted provider like ACE Money Transfer, you can get competitive exchange rates while the transfer costs will remain the lowest. The firm brings exciting promotions offering the lowest fees and rewards to boost remittance inflows to Pakistan. 

 

Getting Live Exchange Rate Updates

Not all service providers offer this feature, albeit getting live updates on currency rate fluctuations can make a huge difference for every overseas Pakistani. ACE Money Transfer tops the char in this regard as the firm has launched its new feature of sending live currency exchange rate updates. You can simply request its customer support on the website or mobile app to get these updates frequently. It will help you know when exchange rates reach the optimum and let you send money home.

 

Understanding the Currency Conversion Mechanism

Overseas Pakistanis should understand the currency conversion mechanism to avoid getting trapped with fake offers circling around in the market. If you know how currencies are converted and how different providers set their prices and exchange rates, you’ll be able to go for the right service where you are offered real-time exchange rates and reasonable prices.

 

Looking Ahead: The Future of Remittances in Pakistan

Despite exchange rate fluctuations, remittances remain a vital part of Pakistan's economy. Technological advances like mobile banking and blockchain could help reduce remittance costs and make the process more efficient. However, potential regulatory challenges and the need for financial literacy can't be ignored.


The Way Forward

Exchange rate fluctuations significantly affect remittance prices when sending money to Pakistan. It's a dynamic interplay of global economic factors, individual circumstances, and timing. As remittances continue to be a financial lifeline for many Pakistanis, understanding and mitigating these fluctuations is crucial.

 

The options for sending and receiving currency are many, and the choice will depend on the specific needs and preferences of the sender and receiver. It's important to consider factors like speed, cost, security, and convenience when choosing the best method for your needs.

 

The exchange rate fluctuations have a significant impact on the prices of remittances when sending money to Pakistan. The exchange rate fluctuations can either increase or decrease the amount of money that a sender will receive for their remittance. When the exchange rate is favourable for the sending country, the remittance prices will be lower, and the receiver will receive a higher amount of money. On the other hand, when the exchange rate is unfavourable for the sending country, the remittance prices will be higher, and the receiver will receive a lower amount of money. Considering the aforesaid critical factors, making an online money transfer to Pakistan via ACE’s remittance solutions is recommended, which enables you to benefit from competitive exchange rates and the lowest transfer costs.


 

FAQs

 

What are exchange rate fluctuations?

Exchange rate fluctuations refer to changes in the price of one country's currency in terms of another's. These fluctuations occur due to various factors like inflation rates, political stability, and economic performance.

 

How do exchange rate fluctuations impact remittance prices to Pakistan?

When exchange rates are favourable, recipients get more Pakistani Rupees per sent Dollar. Conversely, unfavourable rates mean recipients get fewer Rupees for each Dollar, impacting their purchasing power.

 

Who typically sends remittances to Pakistan?

Remittances are often sent by expatriate Pakistanis working abroad, who send money home to support their families.

 

What strategies can help mitigate the impact of exchange rate fluctuations?

Strategies include using financial hedging tools to lock in favourable rates and timing remittances according to market conditions.

 

What is the future of remittances in Pakistan?

Remittances will continue to play a significant role in Pakistan's economy. Technological advancements could help lower remittance costs and improve efficiency, although potential regulatory challenges need to be addressed.


 


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