Global money transfers seem simple till you get to know about the exchange rates.
Do you even think about the exchange rates charged by these online money transfer services?
If not, then this is the time to start thinking about it more seriously.
The amount you send isn’t always the amount the recipient gets. A portion gets deducted as exchange rate fees and that cut can vary depending on the platform. Some services charge a fixed flat rate, making it easy to know what’s deducted.
But others deduct hidden fees and a huge amount of money will be gone before you even notice it.
So, how exactly do exchange rates impact global payments? In this blog, let us explore the following topic.
Global money transfers: Understanding exchange rates
An exchange rate is a fee at which one currency will be exchanged for another currency. It has an impact on international payments and trade.
The rates directly affect the cost of international payments as you could end up paying depending on when and how you transfer money.
There are three primary types of exchange rates. They are as follows:
1. Fixed exchange rates
These are the most common exchange rates in the current exchange rate system. In this system, the government sets a fixed exchange rate for its currency. It is also called the pegged exchange rate system.
The value is tied to another currency like for example UAE Dirham is usually tied with US dollar. This keeps the exchange rate stable and prevents big changes.
2. Floating exchange rates
Most big currencies like the USD and EUR have exchange rates that go up and down all the time depending on how much people want to buy or sell them.
In this system, the exchange rate isn’t fixed and it moves based on the demand and supply of currencies in the foreign exchange market. Here, the currency’s value can rise or fall, depending on the market conditions.
If your transfer involves a floating exchange rate, then there will be some variation in the amount received due to the real-time market changes.
3. Managed exchange rates
This is a mix of both fixed and floating exchange rate types. Here, the market forces decide the exchange rate, but the central bank sometimes steps in to keep the variations under control.
This system is like a balance between free- market movement and government involvement to maintain stability.
Global money transfers: How it affects your global payments
Exchange rates can directly impact the cost of global payments. A good exchange rate can save you money, while a bad one can increase the costs and cut short your money. Here’s how exchange rates affect global payments:
Cost of goods and services
When you pay in a foreign currency, the exchange rate decides how much of your local currency you need. A higher rate means that you need to pay more, while a lower rate keeps costs down.
Risk of price changes
Exchange rates change constantly. It mostly depends on the time when you make a payment. You might pay more or less than expected, which leads to potential gains or losses.
Effect on profits
For businesses that operate on a global basis, the changes in exchange rates can affect how much they earn. A good exchange rate reduces costs and boosts the profits while a bad one increases the expenses and cuts into earnings.
Managing risks
To avoid losses from any unexpected exchange rate changes, companies use a strategy that reduces the risk of losing money. This means that they fix an exchange rate in advance for future payments, keeping their costs stable.
How online money transfer services manage exchange rates
Online money transfer services handle exchange rates by helping individuals and businesses send money across borders securely and quickly.
Since currency values change constantly, these services have certain ways to make sure that every transaction is smooth and efficient while keeping the costs under control.
Real-time exchange rate updates:
Most online money transfer platforms use live exchange rates that change based on the market demand and supply.
Fixed or floating exchange rates:
Some platforms offer fixed exchange rates while others use floating rates, where the exchange rate continues to change until the transaction is finalized.
Risk management strategies:
To decrease the level of changing exchange rates, online transfer services use risk management techniques like hedging.
(Hedging is a financial strategy that is used to protect against the risk of price variations in currencies to reduce the risk of loss.)
Transaction fees:
In addition to exchange rates, most money transfer services charge a transaction fee.
Multi-currency digital wallets:
Some platforms offer digital wallets that let users hold multiple currencies. This allows you to exchange money when the rate is good and can transfer it later when the rates are in favorable side.
Global money transfers: Tips for better online money transfers
Exchange rates affect the amount you pay when making global payments. Here are some smart tips for a better online money transfer deal:
Choose a service with better rates
All the money transfer services do not offer the same rates. Platforms like EFIcyent provide better and fixed flat exchange rates and lower fees than banks.
Transfer money when the rates are good
Exchange rates can go up and down. If you don’t need to send money immediately, wait for a better rate to save your money.
Avoid bank transfers for small amounts
Banks usually charge higher fees and offer lower exchange rates. Online transfer services often provide a cheaper way to send small amounts.
Use cryptocurrency for cheaper transfers
Cryptocurrencies like stable coins can help you send money internationally at a very lower cost. They skip the traditional bank process, reducing fees and sometimes offering better rates.
Look for free transfer offers
Some money transfer services offer free transfers for first-time users or for locations. Use these deals to save money.
Conclusion
Exchange rates directly impact how much money that is sent by you reaches its recipient. Even the small changes in the rates can make a big difference.
Knowing how they work, what affects them and when to transfer your payment can help you save money in the long run.
Whether you are sending money to your family or making any international business payments, keeping an eye on exchange rates and picking the right transfer service ensures you get the best value.
Always compare rates and be sure of the exchange rates before making any global money transfers.