What is currency conversion. Conversion rate

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:40

Banking organizations provide their customers with a number of services, of which one of the main places is given to operations with different currencies. So, in banks in the Russian Federation, you can exchange Russian rubles for other monetary units. In addition, other transactions using different currencies are also available. An example of a service provided by most commercial banks in the Russian Federation is the conversion of various currencies. What is currency conversion?

Foreign currency conversion

Financial organizations in the Russian Federation take an active part in the domestic and international currency markets. This gives them the opportunity to offer their customers services for the implementation of transactions related to banknotes. The category of this kind of service also includes currency conversion, which is a procedure for exchanging one foreign monetary unit for another.

The easiest way to explain what currency conversion is is with a good example. Suppose a client of a commercial bank has a certain amount in US dollars on hand. It must be exchanged for British pounds sterling. In order not to sell dollars for Russian rubles with the subsequent acquisitionBritish pounds, the bank's client can immediately exchange US dollars for British currency. This is the currency conversion.

Formation of exchange rates in commercial banks

What is currency conversion in Russia? The Central Bank of the Russian Federation does not regulate the procedure for determining the quotations of some foreign banknotes relative to another currency. Therefore, commercial banks for the implementation of such transactions sets its own internal rate, which is called the conversion rate. The current market rate is used as a reference for setting this value. As a rule, its value approaches the quotes of currency pairs on the interbank exchange. Thus, for example, a conversion rate is set for carrying out currency transactions at Petrocommercebank.

In addition, many banks introduce the so-called cross-rate to carry out such transactions. With this method, the exchange rate of a foreign currency relative to another is set through a third currency. By the way, it will be worth noting that some financial institutions use the Russian ruble in this capacity, while others use the US dollar.

Currency conversion for individuals

Practically in any commercial bank, individuals have the opportunity to convert such major foreign currencies as the US dollar and the euro. Some banking organizations generally work only with this currency pair. Therefore, if it is necessary to carry out a conversion with other monetary units, sometime to find the right bank.

It should be emphasized that finding the best dollar or euro conversion rate is not an easy task. This is due to the ability of various banking organizations to set their own quotes. At the same time, such a process can be based on exchange rate data from the interbank exchange or on the current exchange rate of the Russian ruble. It should also be borne in mind that quotes may change periodically during one day. What is a conversion, figured out. What facts influence rates and quotes?

Influence on the exchange rate

For the currency market, the banknote of any state is, first of all, an exchange commodity. Therefore, the same laws apply to him. For example, the rule of supply and demand. The ratio of these indicators predetermines the rate of a particular monetary unit and, accordingly, the conversion rate. In addition, it should be emphasized that the exchange rate is a changeable value and directly depends on the economic policy pursued by the issuing state within the country and abroad.

The main factors that affect the exchange rate of the national currency are the external trade balance of the currency issuing country, the political, economic and financial situation in the state, as well as the policy of the regulator, that is, the Central Bank. Let's look at these three circumstances in more detail.

With an increase in the export of goods and services from the country, the monetary unit of this state is strengthening. This is due to the fact that it is observedexcess foreign exchange. Consequently, the demand for the national currency increases. With the ratio of exports and imports close to zero, that is, the trade balance, the national currency occupies a stable position, and its exchange rate is easily predictable.

The political and economic situation in the country is of great importance for the quotes of the national currency. As far as we know, the main macroeconomic parameters include the level of inflation, unemployment, gross domestic product, and GDP per capita. It is these indicators that testify to the current economic situation in the country. For example, high unemployment and rising inflation have a negative impact on the exchange rate of the national currency. At the same time, the growth of the gross domestic product contributes to the strengthening of the monetary unit.

The central bank of any state is the main regulator in the country's financial sector. In addition, according to the constitution of most states, maintaining the national currency in a stable position, strengthening it is the main function of the regulator. And for the implementation of this task, the Central Bank can use a variety of tools and mechanisms.