Planning your next Trip? Use the latest currency exchange
rates to guide you
by Gerron Richard Woodruffe
Published on this site: July 22th, 2005 - See
more articles from this month...
Currency movements can affect the cost of a trip. For example,
a favorable rate of exchange means that your local currency
is worth more and will provide you with more buying power.
In fact, travelers whose local currency has appreciated dramatically
will find that they will be able to afford much more on their
vacation this year. On the other hand, a less favorable exchange
rate of exchange means that your currency will be worth less
resulting in less buying power overseas. If your domestic
currency has depreciated significantly you may find your options
more limited. As a traveler, your main concern should be to
get the most favorable rate possible. In order to do this,
however, one must first understand the foreign exchange market.
In the foreign exchange market, the currency of one country
is exchanged for an equivalent amount of the currency of another.
Foreign exchange rates are not static, but change dynamically-sometimes
many times within a single minute. At this point, however,
most of you might be asking, why does it take more dollars
to buy a euro this week than it did last week? Why would it
cost you more today to buy a cup of coffee in another country
than it did before, even though the price has remained the
same there? The answer has to do with the value of a country's
currency relative to the price of another currency.
Currencies, just like any other commodity that can be bought
or sold, are subject to the laws of supply and demand. When
more people want a particular currency, the cost of the currency
in terms of other currencies will go up. When demand decreases
or people do not want to hold a country's currency, the value
will go down. One factor that directly affects demand for
a currency is international trade. For instance, if I buy
a Japanese car in the US, I give dollars to my dealer, who
gave dollars to his distributor, and so on. But before the
profits are banked by the carmaker in Japan, they are converted
into Yen. There is a surge of buying of Japanese cars this
month, the result is going to be increased demand for Yen-which
will in turn cause an appreciation in the Yen's value. An
increase in international investment into Japan would have
the same effect, since more money is being converted into
Yen to purchase Japanese assets.
As a traveler, understanding currency fluctuations will help
you to take advantage of favorable rates of exchange and spot
a deal when you see one. For example let's look at the EUR/USD
(Euro vs. US dollar) currency pair did over the last three
years and how any changes might have affected tourism in each
of them.
In 2003 the highest exchange rate for the Euro was $1.2646.
In 2004 it increased in value to $1.3666 and by 2005, the
euro is looking at highs in the $1.3579 area.
From looking at this info taken from http://www.dailyfx.com,
we can conclude that this favorable rate of exchange for Euros
vs. US dollars made traveling to the United States a much
better deal in 2005 than in both 2003 and 2004. For the traveler
who noticed this long term upward trend early could have probably
delayed his 2004 trip to the United States knowing that his
hard earned cash would go further in 2005.
When planning a trip to another country all individuals should
keep in mind that the major currencies tend to move +/- 1%
in a given day, which is a relatively minor move unless you
are changing thousands at a time. This means that visiting
smaller countries with less developed economies should warrant
more research and planning since, these countries' currency
would prove more volatile to rate changes. A great way to
find out about the current state of exchange rates is to visit
http://www.gocurrency.com,
a currency conversion site that covers
over 150 currencies worldwide.
To sum up, whether it's a business trip or a second honeymoon,
a working knowledge of the foreign exchange market can and
will make any international journey a more relaxed one.
Gerron Richard Woodruffe is an affiliate of http://www.gocurrency.com.
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