Forecasting Fundamental Factors Affecting Exchange Rates and Currency Transfers

By Justin Thomas

A currency transfer depends on exchange rates and you must yourself be a currency expert or consult a professional to choose the right timing and the right currency

Today”s currency exchange rates are driven by a set of complex factors, which require expert knowledge and a lot of practice for one to able to forecast how they will be fluctuating in the short and/or long run. Every college student in finance knows that the exchange rate represents how a particular currency is quoted against a foreign national counterpart. However, not many realise that in fact the exchange rate is a price; moreover, it is the most volatile price on the market. If your everyday day work does not require watching exchange rate fluctuations closely, taking decisions in seconds, or if you lack financial expertise, you should better consult a currency exchange expert before deciding on the rate for your currency transfer.

Here is an example: if you don”??t know what the difference between nominal and real exchange rates is, you have little chance to get a favourable exchange rate by applying your own skills alone. Banks, non-banking institutions and brokers are the players who know the “??Forex market,”?? which is the market where all currency exchange fluctuations happen and where the nominal exchange rates are established. To play successfully on these markets, one should have profound knowledge and be on the constant watch of the ever changing economic and financial data like the level of exports, imports, trade balance, etc., of a particular country to determine if its national currency will gain in strength or will fall.

Interest rate on government bonds and securities is another factor involved in currency exchange rates and in the cost of a currency transfer, respectively. Add inflation, the “??one price law”?? (which states that the price of a certain good should be the same everywhere in the world) and multiply it by sometimes absolutely unpredictable market behaviour and you will get an idea how complicated the Forex market is.

A currency exchange expert will also take into account the political situation in the country and the current economic situation. A good currency transfer company can make you benefit from expected currency exchange fluctuations even if your home or destination currency is weak at the moment. Choosing the right date, even the right hour, to transfer money can be crucial to get an advantageous exchange rate when transferring money from one currency into another, or abroad. But you have to be very familiar with the currency fluctuations at the moment.

Did you know that on 3 August 2010 the British pound reached a five-month minimum against the U.S. dollar? Currency exchange professionals knew this would happen even before the news hit newspaper headlines because that is what they do for a living. What is important for a person who wants to conduct a currency transfer is that these experts know in advance when a particular transaction in two particular currencies must be executed. Thus, one can make a profit even in a situation when some fundamental factors are against him by conducting a currency transfer just on time.