What Determines the Foreign Exchange Rate?
To determine the foreign exchange rate for different currencies, check the local paper for exchange rates, and pay attention to the inflation rate. Avoid exchanging money with countries that spend more money than they bring in with advice from a financial consultant in this free video on currency exchange.
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Can you imagine the United States as being sort of like your own checking account? Hi, this is Roger Groh of Groh Asset Management. The question today is, "If you think about investing abroad or traveling abroad what determines the exchange rates between the US dollar and wherever you might be going"? Are you going to France? Are you going to Switzerland? Are you going to China or going to Russia? Well, when you go to look in the paper for what you're going to swap your dollars for for their currency, what sets those prices? Well, in the very short term, it's you and me as investors buying actively sell those currencies on a minute by minute basis. In an any day or week, there can be dramatic moves. Longer term it's a little bit different. It's a more of a fundamentally base situation. Generally, if a country is bringing in more money than they're sending out, that currency will strengthen against others. On the other hand, if a country is spending more money than they're bringing in, then those currencies weaken. If you like an example, you don't have to look any further than the US dollar which two years ago was selling at eighty five Euros to one. And today the US dollar sells for about a hundred and thirty four Euros. It's because US dollar is sending out more money than it's bringing in. So that's a little bit about currency exchange. One other note, if you think it's going to weaken, spend your money quick. So the issue is, "How can you take advantage of that"? Or, if you're traveling, what's the best way to play it? Well, if a currency is weakened, you probably don't own, want to own much for a long periods of time. So use your credit cards and use your ATM card in that country. You'll get the best exchange rate possible and you'll get the quickest trade and then you're not limited to long term trends. Hope that helps. I'm Roger Groh with Groh Asset and thank you very much for spending time with me.