The Ups And Downs Of Exchange Rates

We are all on tenterhooks waiting to see whether our own currency is going to perform well for once, or take a plunge in response to news of a setback or a negative piece of news.

Needless to say, now is not the time to be booking holidays abroad.  Quite often it is the case that our money simply won’t go far enough abroad to make a holiday worthwhile.

If you are thinking about going away you should keep an eye on the exchange rates by logging in to a site called Xe.  This can be found at www.xe.com, and it will tell you exactly what the rates are between two countries of your choice at the click of a mouse button.  Furthermore the rates are kept very much up to date, so you won’t be trying to make a decision based on data that is old news.

While it’s certainly the case that the currency markets are always going up and down, they have been giving us more pause for thought of late than they have done in a while.  Take the British pound against the US dollar, for example.  Some months ago it was the dollar that was on the ropes, with much speculation on when (or even if) it could pull itself back up again.  For a brief moment the Brits could even think about taking that once in a lifetime American holiday, as the $2 pound came into effect.

But now, in the midst of October 2008, we are looking at a British pound that is teetering around the $1.69 mark.  That’s quite a difference in the space of a few short months, and anyone who didn’t take that holiday when the exchange rate was favorable won’t be doing it now either.

But how much should we really be worrying about the extremes of the exchange rates between different countries?  There’s not much that we can do about the situation, after all.  But we can learn a lot from it, and this is the area of interest.

If an exchange rate isn’t fixed at a certain point, it will fluctuate depending on the conditions it is subjected to.  So for example, if a specific currency becomes one that everyone wants to get their hands on, then it will be pricier as a result.  It’s much like any other commodity.  Let’s say you have a single dollar and ten people want to buy that dollar from you.  If they all want it that badly they will start offering more money for it than their rivals, so you may end up accepting an offer of well over a dollar to hand it over.

But if only one person wants that dollar and you want to get rid of it, then they may offer you less than the face value of the dollar.  So you will either be stuck with it or you will have to sell it on at lower than its worth.

This is basically how exchange rates work.  It’s all based on supply and demand and depending on the situation in each country at that moment, the exchange rates will go up or down to reflect it.

A lot of this is based on confidence and guesswork.  If one country appears to be on the brink of recession, it doesn’t take much to see that their currency may go down in value.  This is because no one will want to buy into it if the country itself is in trouble.

Unfortunately the global situation at the moment means that many countries are in this position.  This is why we are seeing so many ups and downs with the exchange rates at the moment.  There are plenty of major events going on almost every day that are having a notable effect on the rates, and this is likely to continue for the foreseeable future.

So when it comes to thinking about a holiday or even a quick weekend away abroad, pay close attention to what the exchange rates are doing.  Some countries may offer you a much better deal than others, and it’s worth doing your homework to figure out which ones are going to be kinder.