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Understanding Exchange Rates:
- Exchange rates are the rates at which one currency can be exchanged for another currency.
- They are determined by the supply and demand of the currencies in the market.
- Understanding exchange rates is important for businesses and individuals who participate in international trade or travel.
How Exchange Rates Fluctuate:
- Exchange rates fluctuate based on the supply and demand of the currencies in the market.
- Factors that can affect exchange rates include economic conditions, political events, and interest rate differentials.
- Understanding how exchange rates fluctuate can help businesses and individuals make informed decisions when participating in international trade or travel.
Exchange Rate Example: VND vs Australia dollar:
For example, if the exchange rate between the Vietnamese Dong (VND) and the Australian dollar (AUD) is 23,000 VND to 1 AUD, this means that 1 AUD can be exchanged for 23,000 VND. If the exchange rate changes to 24,000 VND to 1 AUD, this means that the VND has depreciated in value compared to the AUD.
Here how it works:
A traveler to Australia from Vietnam wants to exchange 1,500,000 VND for AUD upon arrival in Australia. The exchange rate is 0.000061. Using the sell rate, the traveler would exchange 1,500,000 VND for AUD 91.62
In this case, the equation is: VND ÷ exchange rate = AUD
1,500,000 VND ÷ 0.000061 = AUD 91.62
After the trip, suppose the traveler has AUD 15 remaining. If the exchange rate has changed to 0.000058, the change from AUD to VND will be 847,059 VND.
AUD 15 x 0.000058 = 847,059 VND
To convert the VND back into AUD, one needs to divide the amount of VND by the current exchange rate.
847,059 VND ÷ 0.000058 = AUD 14.68
How Do Exchange Rates Affect the Supply and Demand of Goods?
Exchange rates can affect the supply and demand of goods by changing the cost of imports and exports. When a country's currency appreciates, imports become cheaper, which can increase demand for imported goods. Conversely, when a country's currency depreciates, exports become more expensive, which can decrease demand for exported goods.
Tips for international students with Finance & exchange rate when you're in oversea:
Monitor exchange rates regularly to stay informed about changes in currency values
Use a currency conversion app or website to compare exchange rates and find the best deals
Consider using a prepaid travel card or a credit card with no foreign transaction fees to avoid high exchange rates and fees
Final word
Be aware of potential currency fluctuations when budgeting for your expenses and consider setting up a savings plan to prepare for any unexpected changes in exchange rates.
