This article is part of the Spotlight series brought to you by TawiPay, the comparison site for international money transfers. The Spotlight series aims at helping people who send money abroad get all the information they need on key money transfer companies, and follow the latest trends of the money transfer industry. This month, we are putting the spotlight on TransferGo. To find out more, you can read now our in-depth review of TransferGo.
One of the most dynamic drivers of the global economic system is foreign exchange. The foreign exchange market, also known as FX or Forex, is the most liquid and active financial marketplace in the world.
Even though the FX marketplace has only existed since the mid 1970’s, when worldwide banking regulations were changed, the FX market has been referred to as the closest to the ideal of perfect competition. (Perfect competition is an economic theory that outlines the ideal marketplace.)
The FX market is unique in that many ways. It is one of the few markets that is in almost continuous operation, closing only for a short period of time on weekends. Despite the market’s geographical reach, which includes almost every country in the world, its huge trading volume, and its effect on a wide range of other transactions, the profits from FX trading are very low in comparison to most other financial investments.
In a nutshell FX is the value of one currency compared to another. The FX market is dominated by banks and large institutions, although some individuals do speculate in the market. FX allows companies to easily do business in today’s global marketplace. It also helps to account for the growth of immigrant workers, many of whom move to other countries in order to help their families back home. The money sent home to help their families, called remittances, amounts to over a half billion dollars annually.
What Influences Rates
FX rates float and can change several times in the course of the day. There are three main influences on FX rates.
Economic factors – The economic factors that influence FX rates seem to be the most objective. They include a balance of trade, government economic regulations, inflation, budget deficits and surpluses, and overall productivity.
Political conditions – The state of a country’s political stability and political events is often one of the most dramatic in terms of FX rates. Often the rates change based on anticipated political events as much as due to actual events. Any sign of political upheaval or instability affects a country’s currency negatively.
Market Psychology – Some currencies, such as the Swiss franc and the US dollar, have a reputation for being a safe investment. During times of instability and unrest many investors will buy those currencies heavily to protect their profits and assets.
Everyday Effects of FX
While most people go about day-to-day life with no thought to FX rates, their influence is widespread. A product that originates in a country with a weak currency will be less expensive in a country with a strong currency. In a growing global marketplace, that means we a subject to changes in FX in many aspects of our daily life.
One of the areas where the FX rate can be most immediately felt is in the money transfer arena. A slight change in the FX rate can have a significant impact on the value of remittances sent by immigrant workers to family back home.
Most banks and money transfer operators (MTOs) use a floating rate or rely on the prevailing rate, called the spot rate, at the moment the transfer is completed. A sudden political or economic event, or even the rumour of one, can drastically reduce the value of the funds sent. When coupled with the traditionally high fees charged by banks and MTOs, this can severely lessen the buying power.
TransferGo employs a local in, local out structure for transfers based on banking partnerships in over 30 different countries. Because of this system, they are able to set fixed FX rates for their customers. Those using TransferGo will know the FX rate at the beginning of their transaction and therefore are secure from unpleasant surprises once the transfer is complete.
Offering a fixed FX rate is just one of the reasons that the new generation of MTOs, such as TransferGo, are changing the landscape of the money transfer business. They believe that making remittances and business purchases as well, should be easy, transparent, and inexpensive. To those ends, TransferGo harnesses the benefits of a connected society and employs mobile applications, sets fixed FX rates, and charges customer’s fees which can be up to 90% less than the traditional methods.
Send money abroad with TransferGo by going to their site.