Understanding Currency Exchange Rate Fluctuations Impact on Individuals

Currency rate fluctuations are market fluctuations where in the currency price of one country gets stronger or weaker compared to another country’s currency.  These currency fluctuations occur on an everyday basis, but little do individuals know about its implications on their everyday functioning.

Currency fluctuations are a result of the floating exchange rate system that works in most economies.  Various factors impact and determine the exchange rates such as the supply and demand of the currency, economic performance of the country, inflation, interest rate differentials, capital flows and so on.

While the impact of currency fluctuations is far reaching for the economy, individuals who are not working closely with the market do not feel the impact.  This is because most of their everyday transactions are carried out in the domestic currency.  One can realize the implications of these fluctuations while undertaking activities or transactions like Foreign Travel, import payment and overseas remittances.

Review this reference article to understand more about the dynamics of currency prices and the impact it carries on you as an individual.

Impact on a Traveler

As an individual traveler, you’d want to maximize your vacation goals at the best cost when traveling on a foreign vacation.  As a traveler you are likely to feel the pinch when booking a holiday to a country with a superior currency exchange price as against your country.  Every cost you incur right from food, stay, souvenirs is likely to increase.  This impact can be huge, thereby increasing your costs by a significant percentage.

Impact on Foreign investment

Wide fluctuations in currency rates or persistently weak currencies are a sign of an unstable economy.  In the larger picture wherein world markets are involved, such a situation can impact foreign investments.  For foreign investors to invest in a country there needs to be a stable economic structure with; a stable government, regulatory laws and steady currency.  More foreign investments in the country are likely to attract better job opportunities and better infrastructure development.  If the currency rate fluctuations show instability, foreign investors are like to refrain from investing and that in turn impacts the growth and development of individuals in the economy.

Impact on Jobs

There is a common myth wherein people believe a stronger currency is better for its economy and people.  Well, to a certain extent, that holds true, but there also is a downside to it.  In the long run it can lead to an economic slowdown.  This is because most companies find outsourcing to other countries with weaker currency a better option and hence the locals are left with fewer job opportunities.

Loans & Interest Rates

A very strong currency can have a drag on the economy that may result in higher interest rates.  Currency rate fluctuations can have a huge impact on interest rates and monetary policies of a country that directly impacts individuals of the economy.  Higher interest rates can mean more expensive loans, higher debt rate on credit cards and so on.

Investments

Individuals investing in local or foreign funds are deeply impacted by currency rate fluctuations.  When it comes to foreign funds investments, individual investors may find it lucrative to invest in foreign investments with stronger currency, but that in turn makes the investing stocks more expensive. If you are an individual who is considering investment, smart analysis of currency exchange rates of various markets can help you arrive at best investment conclusions.

Although as an individual, you may think currency exchange rates do no impact you every day.  However, keeping abreast with latest currency exchange helps individuals cash on good opportunities and reduce their risks well in time.