SolveYourProblem.com
Article Series: Travel Tips
Hot Traveling Tips and Suggestions
Why
Keep Your Eye on Exchange Rates?
Keeping an eye on currency exchange rates
is essential when traveling if staying within a budget or
if just not wasting money is of concern to you at all. What
does exchange rate mean? Typically, using the US dollar as
a guide, other currencies would be worth more or less than
a dollar for exchange of value. For instance, a Canadian
dollar might be worth 85 percent of an American dollar, or
85 cents. Then when comparing a US dollar to the British
pound, it a pound might be worth two US dollars. The fluctuating
exchange rate means that, depending on market conditions,
one day a pound might be worth two dollars, and the next
day a pound might be worth two and a half dollars, and the
next day worth one dollar and ninety cents.
A
currency will be either free floating or pegged. A pegged
currency is fixed by the government relative to the value
of another currency. For example, the Hong Kong dollar in
the 1980’s was fixed or pegged relative to the US dollar
and always worth a set percentage of the currency it was
pegged to. A free floating currency is allowed to fluctuate
in value relative to all the other currencies on the foreign
exchange market. When discussing currency people also refer
to the nominal exchange rate, and the real exchange rate.
The nominal rate is the rate at which a currency of one country
can be traded for the currency of another. The real rate
is the rate at which goods and services of one country can
be traded for the goods and services of another. If, for
example, the price of a product increases by ten percent
in the US and there is a ten percent appreciation in the
Canadian economy against US currency, the price of the product
would remain constant for Canadians despite the US price
increase. This is of course assuming that no tariffs are
involved.
As a practical matter exchange
rates will change from country to country and can be used to make travel and tourism more
attractive in certain countries at certain times, so if there
are several countries you’d like t visit and you have a flexible
schedule, keep an eye on the exchange rates. If a person
is a visitor in New York City it is easy to see how people
in other countries follow this rule. At certain times the
city of New York will be flooded with visitors from Germany,
France, the UK, or Japan. The reason for this is quite simple.
When the exchange rate favors the Japanese or the Europeans,
then visiting America becomes much cheaper for them than
at other times. If for instance, one thousand Euros, due
to a favorable exchange rate, will purchase twelve hundred
Euros in value, then they have a net twenty percent gain
and a twenty percent cash incentive to visit the US. In recent
years this exchange rate has usually worked in favor of Europeans,
but in years past it worked in favor of Americans. For instance,
before the Euro became the standard currency of Europe, Italy
used lira, Germany the deutsche mark, Switzerland the Swiss
franc, Austria the schilling, and France the French franc.
In the early 1980’s the exchange rate was five French francs
to the dollar, two and a half Swiss francs to the dollar,
one thousand lira to the dollar, and two and a half schillings
to the dollar on average. The German mark was fluctuating,
anywhere from 1.7 marks to the dollar to 2.5 marks to the
dollar, so when the dollar was worth 2.5 marks Americans
would be ahead to trade in their dollars for marks. When
the rate was 1.7 they were better off not spending German
marks.
Keeping an eye on exchange rates will always benefit the
traveler. Even if you are just crossing the border to visit
our neighbors to the North in Canada or the South in Mexico,
knowing what the normal value of the other nation’s currency
is, and planning your trip for when the fluctuation is in
your favor will increase spending power.
#
# # # #
SolveYourProblem.com : 2007
> Home
Page > Travel Tips:
Main Page
|
