Understand and use a currency converter

By Famworld
-
06/04/23
Understand and use a currency converter

Understand and use a currency converter

The value of a currency, when used in international trade, is fixed in the currency markets. A currency converter is a handy tool for those who travel or do business in foreign countries. It allows you to quickly and easily convert one currency to another. You will know the value of your money compared to the currency of another country. There are many currency converters on the Internet. But then, what is a monetary currency? How does the currency market work? What exactly is a currency converter used for? Find all the answers to your questions in this article.

Monetary currencies

In the strict sense of the term, the currency represents the monetary unit of a foreign country (euro, dollar, pound sterling, etc.). It is commonly called "currency" if it is a local currency, that is, when it is used in one's own country. It is issued, in the majority of cases, by a central bank which ensures its control. Each country or geographical area has its own official currency. Different countries may decide to adopt the same currency. This is particularly the case for many member countries of the European Union with the euro (€) as their common currency. Some, however, have chosen to take a foreign currency. For example, Panama uses the US dollar as its legal currency unit.

An internationally recognized currency is identified by a code made up of 3 letters according to the ISO 4217 standard. In general, the first two letters correspond to the country, and the third to the initial of the currency (EUR for the euro or USD for the American dollar).

Since all currencies are money, they all serve the same functions. Currency, money is an essential trade tool for buying or selling goods and services across borders. Also used as a unit of measurement of value, it is used to express product prices. Finally, since money is considered a store of value, it can be saved for future use.

Currency market and exchange rates

The foreign exchange market allows the confrontation of offers and requests for convertible currencies. Each currency is quoted and can be freely exchanged for another based on an exchange rate. The exchange rate is the rate, that is to say the price, of one currency against another at time t. For example, how many Mexican pesos are worth one US dollar? Some of the major and most traded currencies in the world include the US Dollar (USD), Euro (EUR), Japanese Yen (JPY).

The exchange rate can be floating or fixed. The floating rate varies with each transaction depending on the supply and demand of each of the two currencies. The fixed rate is constant. It is determined in relation to reference currencies, generally the dollar or the euro. It is set by the state and can only be changed by the state.

The value of the currency differs from country to country depending on the economic and financial strength of each. If the currency of a given country is in high demand by foreign buyers, it has more value in the currency market. On the other hand, if a currency is less in demand and exists in large quantities in the market, its value goes down. For example, when US imports increase, greater amounts of US dollars are sent abroad to purchase goods. Consequently, the supply of dollars in foreign markets increases. This tends to reduce their value compared to other currencies. A drop in the market price of a currency is called depreciation, while a rise is called appreciation.

Currency converter: how it works

The payment of international transactions requires conversion operations from one currency to another. When traveling, the use of a currency converter may be essential if the foreign currency is different from yours.

A currency converter is used to calculate how much you could get from your currency in foreign currencies. It is essential to go through this tool before trading currencies. For what ? Because every time you exchange money, banks mark up exchange rates with conversion fees. A reliable currency converter then helps you to know exactly the real exchange rate. It then allows you to deduct and compare the amounts of conversion fees applied by exchange institutions.

Finally, be aware that there are many online tools for converting currencies. However, beware of bad exchange rates. You can also consult the website of the Ministry of the Economy, in particular the section of the General Directorate of Public Finances. You will find the exchange rates by currency or by country.

Just enter the amount you want in a dedicated box in the online software. Next, click on the drop-down lists to select the currencies between which you want to convert. The tool will show you the current rate and how it has changed from the day before or over the last week or month.

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