The foreign exchange is an over-the-counter or decentralized market for the trading of various currencies. This market effectively determines exchange rates for each currency exchanged. It includes all exchanges and factors involved in purchasing, selling and exchanging foreign currency at either current or predetermined prices. Foreign Exchange Traders buy and sell currencies and makes profit by the difference between the bid and ask price. Foreign Exchange Traders makes use of Forex market makers who manage the foreign exchange marketplace. Forex market makers are dealers who buy and sell currencies on behalf of customers.
Foreign exchange trading involves the purchase of one currency and the sale of another. In this market you can buy currency with your credit card and then sell it with your debit card. Credit cards and debit cards are two of the most widely used sources to purchase and sell currencies. A person also can use their debit card for foreign currency exchange, which helps people a lot in saving money. Foreign exchange trading takes place on a virtual platform, which is the Forex market.
A local currency exchange rate is based on the rate of a local currency compared to another local currency. It is expressed as the rate at which the worth of one currency is converted into another according to the prevailing market rate. The value of a country is indicated along with its name, currency name and political system. A trader buys and sells only the money denominated in his local currency and earns interest on the difference between the exchange rate and the foreign currency exchange rate.
A major part of the foreign exchange business is made by large financial corporations and international business houses. A corporation may buy dollars with British pounds and sell dollars with Canadian dollars. So, when the British pound is stronger than the Canadian dollar, it means that the corporation will make more profit. Similarly, when a company buys dollar with Japanese yen and sells dollar with the American dollar, the profit generated by the company will be much higher than if the corporation had bought yen with American dollar.
On the other hand, there are various factors that affect foreign exchange rate such as the balance of payments, trade balance, level of trade, capital flow, inflation, and so on. There is an interesting trend in the business world today, wherein a trader buys a commodity and sells it for a higher price in the hope that the commodity will appreciate in value. But if the price appreciation of the commodity goes below the selling price, then the trader would be losing.
So, what do you think about a best rate guarantee? You should remember that a best rate guarantee does not guarantee that you will get a good profit every time. There are certain terms and conditions involved. If the dealer has a branch office in your country, the dealer might be able to get a better exchange rate for your currency. But then again, there are some companies which have branch offices abroad. So, you have to choose the company carefully.