What is Foreign Exchange?
Foreign exchange is also known as forex as it converts one currency to another. For example, you can swap INR to Dollars at a given rate of exchange for the day.
The currency is exchanged at a specified rate known as the exchange rate. The demand and supply laws of the country determine the value of the country’s currency. All the foreign exchange transactions take place in the forex market.
The foreign exchange market is the largest and the most liquid globally, with trillions of currencies getting exchanged each day. A currency’s value is typically pegged to another country’s currency or a different basket of currencies in foreign exchange.
The foreign exchange market does not have a centralized location for the exchange of currency globally. It works on the electronic network of financial institutes, banks, individual traders, and the most popular online currency exchange websites.
In other words, forex exchange is a global market, where you can exchange any currency of the world with your country’s currency.
It uses different currency pairs that are utilized in one or another. The term forward and future is a way to participate in the global forex exchange market. The world’s most-traded currencies are the U.S dollar, British pounds, Yen, and Australian dollars.
Key Factors that Affect Foreign Exchange Rates
The factors that affect the exchange rate also affect trading. They influence the market forces that increase or decrease the value of the currency. Economic and political factors affect the currency and its value.
The economic factors usually include the country’s policies, the trade balances, and the economic growth outlook.
But, inflation is one factor that affects the value of the currency the most and causes it to descend. Inflation can negatively affect the value of the currency, which also affects the country’s growth. A low rate of inflation does not impact the exchange rate, but a higher rate can negatively impact.
Political conditions also affect the forex rate. If there is political instability or political conflict, it may affect the value of the currency. At times, the normal psychology of the forex market has an impact on currency value or rate.
How Do Currency Exchange Rates Work
The exchange rate decides the value of the currency in the market. While trading currencies in forex, they are generally listed in pairs. There is a representation of every currency value.
U.S dollar is represented by USD, and the INR represents Indian currency. A price is associated with every currency pair. In the forex exchange market, the currency is traded in Micros, Standard, Mini, and Lots. A Micro lot usually is 1000 worth of the given currency. A Standard lot is 100,000, and a Mini lot is 10,000.
Banks have a fixed rate of exchange on currency or a predetermined rate. But, online forex exchange sites like BookMyForex offer you a rate that works on a real-time basis. For example, if you are looking to convert INR to USD, you can do so at live and direct rates on our platform. The currency exchange rates increase or decrease depending on a number of market related factors.
Choosing a rate of exchange depends on the value of the exchange. The first currency is called the base and the second one is the quote currency.
Foreign exchange market
Foreign exchange is a decentralized market where the trading of currencies takes place. It’s one of the world’s largest markets, with daily exchange transactions of $5.1 trillion.
The forex exchange market’s major trading centers are located in London, New York, Hong Kong, and Frankfurt. The exchange transactions in the market occur five days a week and 24 hours, except for weekends.
The exchange rate offered by the foreign exchange markets all over the world is similar despite being decentralized. It is deemed one of the most accessible markets globally as the participants range from individual traders, financial institutes, banks, and tourists.
The forex market does not involve any simple currency conversion. All the conversions and exchanges in the market happen based on large transactions involving various financial instruments, including swaps, forwards, and other options.
Like commodity markets, the forex market operates as a spot market and forward market. Spot market handles only the current transactions. The rate of exchange is fixed at the time of transaction.
The forward market handles the transactions or exchanges that are meant for future delivery. It works on the currency derivative. Exchanging currency at a price agreed upon is a binding rule.
The currency derivatives are the most efficient risk management instruments and provide benefits like speculation, Hedging, and leverage.
In the forex market, commercial countries trade in smaller quantities compared to banks and other financial institutes. The trades of which have a short-term impact on the market. The USD or dollar is the most traded currency of the foreign exchange market.
FAQs
1. How can you get the best deal on forex rates in India?
You can use BookMyForex’s services to avail the best forex rates. At BookMyForex, our job is to scan the forex rates in your area and get you the best deal possible. You just need to enter the currency of your choice along with your city on our portal and we will show you the forex vendors with the best rates in your area.
We give you the option to book at live and transparent rates. If you go to a bank/money changer directly, they will give you a fixed rate for the day. Book your forex order with us now!
2. How do I pay for my forex orders?
You can pay for your forex orders on BookMyForex using various modes such as paying via cash, netbanking, debit/credit cards or UPI. If the forex card payment is below Rs 50,000, you can pay via cash but in case it exceeds that mark, you will have to choose the other options. You can pay using debit/credit cards or even use online wallets. We’d like to tell you that we use the highest level of security possible on our website so you can be rest assured and make the payments.
3. How long will it take to deliver the currency to my home?
If you book a currency order on BookMyForex before 1 pm, we will be able to deliver the currency to your doorstep on the same day itself. If you place an order post 1 pm, we will try the level best at our end to deliver the currency on that day, but we can’t take any guarantee. You can be rest assured that you will have the currency delivered the next day at the earliest.
4. How will I receive Indian Rupee while selling a foreign currency after coming back from the trip?
You can place a sell order for the particular foreign currency on BookMyForex. You can complete the order once you are satisfied with the currency rates that are shown to you on the screen. Once the order has been successfully placed, you can either visit the authorized forex vendor’s shop or ask for an agent to visit your home. You will be able to exchange foreign currency for Indian Rupee.
5. What’s the maximum amount of foreign currency one can carry from India?
Out of the 250,000 US Dollars limit set under Liberalized Remittance Scheme by the RBI, you can only take 3,000 USD or its equivalent in other currency in form of cash when you take a trip abroad. The remaining amount can be carried in a forex/travel card or traveller’s cheque.
6. Can I pay in full cash to get foreign currency notes?
You can pay for your forex orders on BookMyForex using various modes such as paying via cash, netbanking, debit/credit cards or UPI. If the forex card payment is below Rs 50,000, you can pay via cash but in case it exceeds that mark, you will have to choose the other options. It is mandatory for you to go with any other option than cash if your forex order transaction crosses Rs 50,000.
You can pay using debit/credit cards or even use online wallets in that case.
7. How many days in advance one can buy foreign exchange for travel abroad?
It is possible to draw up acceptable foreign exchanges about two months in advance. In the event that the foreign currency cannot be used within the same span of two months, it should be submitted back to an authorised forex vendor and you can get INR in return.
That being said, you are free to keep up to 2,000 US Dollars in the form of foreign currency notes or traveler’s cheques for potential use after arriving back home from a foreign country.
8. How much foreign currency can be taken in form of cash if one is travelling abroad?
Out of the 250,000 US Dollars limit set under Liberalized Remittance Scheme by the RBI, you can only take 3,000 USD or its equivalent in other currency in form of cash when you take a trip abroad. The remaining amount can be carried in a forex/travel card or traveller’s cheque.
9. How much time does an Indian resident have to surrender foreign currency after coming back to India?
According to the rules laid down by the Reserve Bank of India, an Indian citizen is entitled to keep up to 2,000 US dollars of foreign currency or its counterpart forever. Foreign currencies crossing the limit told earlier must be encashed within 182 days of their arrival in India.
10. Can a resident keep the foreign currency coins or is it mandatory to surrender that as well?
There are no specific laws on foreign currency coins set by the Reserve Bank of India. So, it is safe to say that you can keep the coins with you without any limit.
11. How much foreign currency can be brought in while coming into India?
When you return back to India, there is no cap on how much foreign currency you can carry back home. However, the cumulative amount of foreign currency notes in advance of or equal to 3,000 US Dollars and the combined value of foreign currency notes, bank notes or traveller’s cheques in advance of or equal to 10,000 US Dollars must be reported to the customs authorities.
12. Is there any limit on how much amount can I transfer abroad?
An Indian resident can remit a maximum of 250,000 US Dollars or its equivalent in some other foreign currency per financial year. You can use this limit in one trip or multiple foreign trips throughout the year. This limit has been set under the Liberalized Remittance Scheme by the RBI.
13. Is there any cap on the number of transactions for the LRS limit set by RBI?
No, there is no cap on the number of remittance related transactions. You can use the 250,000 USD limit in either one trip or multiple trips/international money transfers.
Related Resources:
How to Exchange Foreign Currency in India
Best Ways to Exchange Currency Without Paying Huge Fees
Your Complete Guide to Buying Foreign Currency in India!
Forex Guidelines by RBI Explained
TCS on Forex transactions under LRS
Tips for Utilizing Left Over Foreign Currency
Different Purposes for Which You Need to Buy Foreign Currency
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