In simplest terms, foreign exchange rates are determined by market forces of demand and supply and have their basis in the supply and demand of the currency you intend to buy or sell. Whenever you need to buy or sell foreign currency in India, you’ll find that the exchange rates vary quite widely between different sources, such as banks and information websites. The Reserve Bank of India (RBI) does not set an official forex rate. Still, it does exercise some control over the market by setting a cap on how far the interbank exchange rate can deviate from its official intervention rate at any given point in time.
Why do exchange rates vary between countries?
Exchange rates vary because of market forces of demand and supply. One country’s currency can become worth more or less than another currency based on a wide range of factors, including economic growth or contraction, inflation trends, perceived riskiness of holding a particular currency, trade imbalances (or surpluses), government policy decisions about interest rates (e.g., whether to raise them or lower them), etc. In general, when an economy contracts – i.e., gross domestic product (GDP) declines – a nation’s currency becomes weaker relative to other currencies. When an economy expands – i.e., GDP increases – its currency may get stronger relative to others if global markets generally view it as safe for investment and commerce activities.
Why do currency rates vary daily
The currency market functions daily. Hence, there will be fluctuations in currencies. The first reason the currency rate varies daily is because of demand-supply factors. Whenever there is more demand for a particular currency than the supply, its value rises (i.e., the value of the rupee falls). In other words, when more people are asking for British pounds (or any other foreign currency) than people are selling them to others at current prices, then you can expect the price to go up soon. The opposite holds if supply exceeds demand: price falls.
Do different banks have different currency exchange rates
The difference in the currency exchange rate (sometimes also known as foreign exchange rates) mainly lies in each bank’s different policies. Some prominent Indian Banks follow a dynamic or floating forex system which means they are free to buy and sell currencies at prices set in the international market. The Reserve Bank of India (RBI) regulates all inter-bank dealings concerning Forex under Foreign Exchange Management Act, 1999 (FEMA). The objective of these acts is to ensure the orderly development of the Foreign Exchange Market in India.
The most common exchange rate system in India!!
In India, there are mainly two types of exchange rate systems prevailing at present. They are the Floating Exchange Rate System & Fixed Exchange Rate System. Under floating exchange rate system, change in the value of Indian Rupee versus other currencies due to demand and supply market forces. In the case of the fixed exchange rate system value of the Indian Rupee remains set against other currencies under the control of the Reserve Bank Of India.
Unimoni – The preferred way to all foreign exchange needs
Whether for personal or business use, Unimoni has always been your preferred way to do all your Foreign Exchange needs. It’s also easy – you can do all your Forex transactions at home or on the go with our mobile app. What’s more? We’re available 24×7 to serve you better, so book an appointment today! Please meet us at any of our branches across India.
