How does Foreign Currency Exchange work?

Foreign currency exchange is the trading of currencies around the world in a decentralised over-the-counter financial market. If you want to buy a currency, you will pay for it with a different currency, using the central foreign exchange market. As most currencies are today floated, the value of currencies is constantly changing. One well-known exception to this is China, which has pegged its currency to the US dollar.

There is speculation, however, that this policy may change shortly.

The Australian dollar, for instance, has increased rapidly in value over the last six months, while the US dollar and Euro have fallen. This means that your Australian dollar can buy ‘more’ of a foreign currency such as the Euro. This is particularly good news for travellers, who can see their Aussie dollar go a lot further in Europe and North America. It’s also a good time for importers, who can get more bang for their buck.

If you want to get involved in foreign currency exchange, the most common way to do this is through a bank or broker. Brokers will act in the foreign exchange market on your behalf, but they will charge commissions. Another option is to negotiate directly with a foreign currency dealer, who will make a direct offer of their selling price. If you simply want to exchange one currency for another, your bank or, alternatively, a non-bank foreign exchange company such as Send Money Home will enable you to make this type of transaction. There will, however, be extra costs involved in addition to the value of the currency.