The exchange rate is one of the most important factor affecting international transactions. With increased internet usage, people are more likely to buy and sell products and services worldwide. For most international trade, the product and services prices are listed in US dollars. The actual amount which a person receives or has to pay depends on the exchange rate for the mode of payment which is used. Hence it is important for every person who is importing or exporting to understand how the exchange rate for a transaction is determined and how he can get the best rate
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The exchange rate depends on the relative strength of the currencies which are being exchanged. The currency value of a country is usually linked to the economy of the country, the trade deficit or surplus, politics, investments and other factors. It also depends on the monetary policy of the government and central bank. When any of these factors for a particular country will change, the currency will become stronger or weaker. This will affect the exchange rate for the currency. In a few countries, the exchange rate is fixed by the government as part of the economic policy.
A person who is transacting in foreign currency should be aware that the rates he will get for selling foreign currency will usually be lower than the rates he has to pay for buying the foreign currency. The difference in the rates is the profit of the financial service provider exchanging the foreign currency. There are a large number of foreign currency exchangers like banks, online payment services and money transfer services. The exchange rates for a currency pair offered will differ significantly and can make a difference if larger amounts are being transferred.
While usually the best exchange rate for receiving payment services is offered by banks . They will usually also charge some additional fees. This will effectively reduce the amount which the recipient will get in his bank account. So wire transfer is preferred for larger amounts. Many people are receiving smaller payments so it is better to use an online payment service like Paypal, Payoneer, Skrill, Webmoney and Lanistar. These online payment services can be used to receive small payments, though the exchange rate which they offer, is lower than the bank rate. Thus it is important to check the exchange rate before choose a payment processor or money transfer service with international transactions.