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Who Sets the Daily Exchange Rates?

Updated on Jun 25, 2019
World map currencies

The international exchange rate is a metric that affects international trade between countries and their citizens who send money online. The exchange rate determines the price or value of one currency against another. Typically, there are two types of exchange rates: floating, where the rate is derived from a number of market factors, and pegged, where the currency rate increases or decreases in tandem with the other country’s currency.

If you reside overseas, the exchange rate plays a vital role as the amount which your family would receive is determined by the value of the currency in their country of origin against the amount sent by you. If the currency of the country to which you send money online increases, the recipient will receive a higher amount.

USD to PKR

For example, the value of Pakistani Rupee(PKR) against the US Dollar(US$) is 151.90. Therefore, if you send USD 1000 to Pakistan, the recipient will receive Rs. 151,900. If this rate increases by Rs. 1, the recipient will get Rs. 152,900 against the same amount.

Factors influencing the daily exchange rates

The following factors determine the value of the currency if a country has a floating exchange rate:

  1. Demand and Supply: The forces of demand and supply define the volume of a currency required and supplied. For example, if the demand for Australian Dollars increases in India but the supply remains the same, the demand-supply relationship will increase the valuation of Australian Dollars against the Indian Rupees. Always compare the best rates to send money from Australia to India before sending. 
  2. Geopolitical and Economic Factors: Among numerous geopolitical and economic factors influencing the exchange rates, the most common one includes the change in the interest rate by a country’s government, unemployment rates, increase/decrease in GDP, inflation rates, taxation policies and more. In addition to the market scenario, these factors can have a negative or positive effect on a country’s exchange rates.
  3. Forex and Commodities: The correlation between currency and commodity also defines the exchange rates. For example, the Indian Rupee is positively correlated to the price of gold. This means that if the price of gold rises, the Indian currency will rise further against other major currencies, leading to a rise in the exchange rate.

In the case of a pegged currency, the exchange rates are set by the country’s government. They hold large reserves of the other country’s currency and regulate it to establish the exchange rates.

To send money online, it is always beneficial to monitor the exchange rates between your home country and the country of employment. While sending money through digital money transfer platforms, the amount is converted based on the current exchange rates. To ensure that the recipient gets the maximum amount, it should be sent when the exchange rates are higher and through a reliable online money transfer platform. CompareRemit allows you to compare and evaluate different digital money transfer platforms to send money online quickly and with ease.

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