Exchange rates may seem like a bit of an abstract concept, but they actually affect everything that we do, regardless of whether that includes going on a summer holiday or running an overseas business. How, you ask? Well, in this post, we’ll show you exactly how exchange rates affect tourism and businesses. But first, let’s have a look at why exchange rates move.
Why Exchange Rates Move
Exchange rates move as currencies are paired against each other. This means that as the value of one currency rises, the other’s value must fall.
The value of a currency is measured against a number of different factors. These include everything from employment rates to elections and even wars. The simplest of all economic announcements, including something on interest rates or farming data can cause the price of a currency to move up and down.
Also, it’s important to note that changes in the price of one currency (or even an asset) can have a huge knock-on impact. For example, if there’s an oil shortage in Saudi Arabia, then it can have effects on economies the world over. As well as lowering the value of middle eastern currencies, it also has an effect on currencies in the UK, US and beyond. That’s because, thanks to globalisation, these economies are dependent on each other. So, a fuel shortage in Iran will not only affect the price of oil, but the value of the pound, too.
So, exchange rates can move due to a number of different factors. But how does this affect you if you’re going on holiday or doing business deals? Let’s take a look.
Tourism
The largest impact on tourism comes from foreign exchange rates when people are getting their holiday spending money.
When you go to a bureau de change, you may notice that the amount that you can buy on one day varies in comparison to another day. This change is only minimal, but it can make a big difference if you’re spending large amounts for your holiday spending money.
That’s why so many people shop around. The rate often varies hour to hour, and it certainly varies from location to location. However, on top of this, it’s also worth pointing out that although bureau de changes are convenient, they’re often not the best way of getting your money.
If you don’t want to be hit hard by unfavourable exchange rates and transaction fees, you’re better off looking online. This way, you’re less likely to pay extortionate fees for foreign exchange transactions.
Businesses
Foreign exchange rates also have a large impact on businesses operating overseas. This is because, if you sign a contract to pay a certain amount of pounds for your goods regardless of what the host’s currency is worth, then you could end up paying way over or under the odds for your products.
Likewise, it is also worth noting that, if you agree to pay a fluctuating fee based on what each currency is worth at the time of purchase, then you may end up paying considerably more for one shipment than the last one.
As such, before you take your business global, you must consider the impacts of this. By paying different amounts for each pallet of goods, you may have to structure your finances differently. So you’ll have to plan for if the pound takes a nosedive, or even reconsider your pricing structure regularly.
To conclude, exchange rates affect everything that we do, regardless of whether it’s business or personal. So, before you travel or do a business deal, make sure you check the exchange rate carefully, you could save a fortune.
Author Bio
Zak Goldberg is a Law & Business Graduate from the University of Leeds who has chosen to follow his aspirations of becoming a full-time published writer, offering his expertise on all areas of law and finance.
