In foreign currency exchange, foreign currency in circulation (FCC), comprehensive dollarisation index (CDI), currency substitution Index (CSI) and asset substitution Index (ASI) play vital role. Specific foreign exchange needs are divided into two.
1. Foreign exchange for business
2. Foreign exchange for individuals
Business related foreign exchanges are further divided into three. They are:
1. Excellent rates on foreign currency exchange for business are offered by the companies who are in those trades for those who opt for a purchase or sale in a foreign currency. They give better exchange rates for low fees. Some do not collect fees at all. They assist in formulating strategies to reduce your foreign exchange risk.
2. For exporters, foreign currency payments are of the essence to exporting. Business clients will have to forward hedging, limit orders, have access for SMS rate alerts and obtain market updates from their dealer. They should have online dealing system and ensure that they receive access to live market quotes and a better deal when making their foreign exchange transactions. Managing forex exposures are not an easy job.
3. Foreign currency payments are essential for importers too. Importers should have the unexampled convenience of attending to forex via the internet that perform forex transactions.
In foreign currency exchange, sending on contracts allow the client to lock in an exchange rate with immediate effect. No immediate payment for the purchased currency is necessary until a future date. This procedure helps the client to be safe from the fluctuations due to foreign exchange transfer. Normally, the forward exchange rate is calculated using the current exchange rate and interest rates for the two currencies. The time or length of the contract also counts.
Forward contracts demand a deposit that allows the client to utilize the majority of their funds until the end of the forward contract when funds are exchanged. They also reduce Client’s exchange rate risk. This allows the client to be for certain of the cost of their purchased currency.