However, Americans visiting Europe this summer will find items a little bit cheaper because of the drastic shift in the exchange rates, and not businesses lowering their prices.
During the summer 2014 months American tourists were able to exchange one American dollar for 0.75 Euros. By summer 2015, American tourists could exchange the same American dollar but receive 0.88 Euros in exchange.
What happened?
All major currencies trade on the foreign exchange market. The exchange market assists international trade, investments and tourisms by enabling the conversion of one currency to the other. Fluctuations in the foreign exchange market result in changes in exchange rates.
The top eight most widely traded currencies in the world include the U.S. Dollar, Euro, Japanese Yen, Great British Pound, Swiss Franc, Canadian Dollar, Australian / New Zealand Dollar and the South African Rand.
Returning to our discussion of an American tourist visiting Europe for a vacation. Suppose the tourist began planning his 2015 trip in 2014 and acquired 1,000 Euros it would have cost him around $1,250. If the tourist would have waited until summer 2015, the same 1,000 Euros would have cost $1,100.
Many economists and foreign exchange experts are now predicting the Euro will reach parity with the U.S. Dollar.
How Did That Happen?
In simple terms, demand for a currency determines its values. As we have seen in the news headlines throughout the year, various European nations (most of which use the same centralized currency, the Euro) were facing difficult economic periods.
Greece’s economic future remains a large concern as the country is stepping up efforts to reach an accord with its creditors in time to avoid a default. Productivity and labor concerns out of Germany and France also remain a concern.
With that said, investors, banks and financial institutions (such as hedge funds) realize there is a higher degree of uncertainty within Europe than there was a year ago. As such, demand for the Euro has fallen while demand for the U.S. Dollar has risen as it is viewed as a safer currency to hold.
Naturally, other factors that determine a foreign exchange rate include the country’s GDP outlook, pricing changes in a major commodity export (such as oil, gold, or even coffee), political stability, among others.
You Don’t Need To Be A Tourist To Exchange Money
Converting one currency to another is most certainly not limited to travelers. In fact, millions of individuals make a living by taking advantage of fluctuations in exchange markets through online trading.
Most financial intuitions offer their clients access to trade in the foreign exchange market. If your bank does not offer access, there are many online brokers that offer online forex trading.
Setting up a foreign exchange account is straightforward and many companies offer sign-up bonuses or other incentives.
Once a foreign exchange account is set up and properly funded, the user now has access to buy and sell virtually every global currency.
Investors could make use of the foreign exchange market to supplement their already existing investments in the stock market. On the other hand, a basket of multiple currencies offers investors a diversified investment tool.
As an example, investors who want to bet on the price of oil rising could consider buying a combination of oil-related currencies such as the Canadian Dollar or Mexican Peso.
Approximately $3 trillion worth of currencies change hands on a daily basis, making it the largest trading market in the world. As such, the exchange is considered to be very liquid (that is every buyer is likely to find a seller and vice versa) and lucrative for day traders that seek to repeat small gains over and over again. Naturally, investing in foreign exchange isn’t without risks that need to be fully understood before investing and trading.
source: everybodylovesyourmoney.com
