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Currency exchange rates. Explanations.

2016-05-22

Currency exchange rates - what is it and how does it work?
As you know, any product has a value. If money is a commodity, you can buy it too. Each country has its own currency, as a means of governing the economy, and it has its own rate, that is, value in relation to other currencies. It is impossible to purchase any product abroad for the national currency of your state. To do this, you need to perform the procedure for buying the required type of money. For example, if a Ukrainian citizen, who has a hryvnia in his hands, wants to purchase goods from the United States, he can do this by exchanging Ukrainian money for American money.

This process is carried out at the exchange rate, which is the value of one unit of the national currency in the form of the national currency of another country. For example: 1 US dollar = 25, 2 UAH. (as of 05/10/2016).

The exchange takes place in a similar way with both conventional and electronic money.
 

What is the exchange for?

This procedure is performed to address many issues:

    Purchase of goods from a foreign Internet market.
    For doing business, both small and large.
    Payment for services provided by a foreign company.
    Transfer to the required national currency so that it can be freely used in your country. As a rule, this is the received salary for remote work or work abroad.
    To manipulate the currency used by the Forex market participants.

Currency exchange - conversion

Sometimes, in order to understand the meaning of a particular category, it is enough to learn a few synonyms, and you involuntarily open an understanding of the essence of this subject. Something similar happens with the term conversion, which in fact is the very exchange or purchase of one currency for another at the exchange rate of conventional or electronic money.

Currency exchange is a kind of transformation of one type of currency into another through their value, determined by the banking system or the financial market, subject to market laws. This means that the market sets the sale and purchase values, and a profit can be made from this difference. This type of activity is carried out by banks, stationary exchange offices, and e-currency exchangers. The latter have their own course of electronic money.

The Forex market can be distinguished especially, because in this area the main commodity is currencies, on speculation and correct forecasting of the rate of which traders have their profit.

And if we talk about conversion, then it really is a currency exchange, but has a somewhat broader concept. She participates in the process of international relations. The various currencies are classified according to their convertibility. If the national currency is fully convertible, it can participate in payment for goods on the international market. In other words, convertible currency is in higher demand in other countries. Why is the Russian ruble often called "wooden", because not all countries and does not fully attract the Russian ruble, so it is considered partially convertible.

As a rule, there is complete confidence in a convertible currency; relations between countries with currencies of the same level are more stable, trusting and simple. And this is understandable, because the currencies of both countries are equally welcomed by both sides. Such countries are distinguished by high economic potential, they have wider opportunities for economic development with access to the international arena. 

Electronic money rescues weakly convertible currency

By the way, so that the weak convertibility of a particular currency does not affect the relationship between countries, you can carry it out through conversion into virtual currency at the appropriate exchange rate. Moreover, this process is carried out online almost instantly.

All relationships that occur with the national currencies of different states are reflected in the behavior of the electronic currency. After all, the virtual money that is circulated in electronic payment systems represents the equivalents of national currencies. But on the other hand, the activities of virtual payment systems also have an impact on the behavior of national currencies.

In electronic settlement systems there is a function that simplifies the operation of the mechanism in relations between partners from different countries. These services provide more competitive e-money exchange rates.

Currency converter

Electronic payment systems have their own currency converter, which gives them certain advantages:

    Instant conversion. The procedure requires pressing one button. Money is automatically recalculated.
    The amount is rounded to the nearest hundredth. Sometimes this comes with some benefit.
    Reverse calculation. It allows you to make verification manipulations, and you can see the final result, which allows you to accurately calculate all actions until the final moment of conversion. This eliminates errors and miscalculations.

The exchange rate of electronic money in the virtual service, as well as in the usual one, is under the influence of the policy of the state, which owns this or that currency. But it has its own distinctive features. Exchange rates for virtual currencies may not match official or commercial rates in conventional payment systems. The virtual course is based on supply and demand in the electronic system. There is a representation of the average and optimal rates, which is reflected in the level of demand in the electronic network.

Course regulation

The conclusion is this: the exchange rate of electronic money is regulated under the influence of the following factors:

    Market relations (sale, exchange, purchase) within the electronic service.
    Official bank rate.

Electronic currencies are exchanged by tens of millions of citizens from different countries who have recognized electronic payment systems and have become their active users.

Quite recently, it was difficult to imagine that a unique system would be created that would provide such convenient and easy-to-use tools for exchanging currencies at the rate of electronic money and withdrawing them through a bank card. This greatly simplifies many monetary transactions for an individual user and for doing business of any scale, including international.