With fluctuating currencies across world markets, investors are always looking for ways to take advantage of favourable exchange rates. With the pound falling in value after the Brexit result, yet expected to rise again in time, the notion of trading one currency for another is fresh in the public conscience.
Here is a look at how to use this in your favour if looking to get more value for your money.
Exchange rates are the value of one currency compared to another and they will vary mainly due to economic performance. Higher inflation rates in one country will often mean lower exchange rates when converting this currency into another.
For example, if UK inflation rises then this means that UK-produced goods will increase in price faster than elsewhere in the world. Demand from foreign buyers for the UK market will decline and sterling will decrease in value.
Also, higher interest rates in a country will appeal to depositors looking to gain more value for their savings. If the Chancellor raises interest rates in the UK, this should also see an increased demand for the pound.
Rates can change relatively quickly, especially after significant events such as the EU Referendum or a budget announcement. Keep an eye out for upcoming international events such as an important general election, as well as signs of changing inflation and interest rates, which may lead to attractive currency exchange deals.
There are numerous reasons why people exchange currency, although the most popular reason is for an upcoming holiday. Doing so is relatively easy in the modern age, with plenty of high street and online outlets ready to swap your pounds for an array of foreign currency.
Currency exchange outlets will charge a commission fee for converting your cash so it pays to shop around for the best deal. However, remember that some ‘commission-free’ deals will only mean their exchange rate isn’t very favourable. There’s also pre-paid travel cards that mean you can withdraw money abroad without incurring additional bank fees.
Many traders use the Forex platform to speculate on currency, with trillions of pounds exchanged every day. Unlike physical stores, Forex trading occurs 24-hours a day through a global network of banks, investors and businesses. FX traders try and anticipate inflation or changing inflation rates before they make a purchase or sale of currency, usually for short-term gain.
Get More for Your Money
Shrewd investors are always on the lookout for opportunities to make their money stretch further. One current example is the favourable exchange rate between the British pound and UAE dirham, appealing most to wealthy foreign property investors looking at the UK market.
With the pound decreasing in value, many foreign investors will be getting more for their money with the added incentive of probable long-term gains on their investment. In other words, now is looking like the time to use the dirham to spend in the UK due to the favourable currency exchange. Currently because of the exchange rates UK property is about 10 per cent cheaper today than it was before the EU Referendum. A great time to save thousands on an investment property.
Furthermore, because UAE currency is pegged to the US dollar, earnings have become worth more due to the strong performance of the American economy. Links between UAE investors and the UK are already very healthy, with new trade deals expected to reach £25 billion between the two countries by 2020.
If you found this article interesting and would like to know more, check out What Does the Cut in UK Interest Rates Mean for Investors?