Whenever a citizen of country plans to go to another country or arrives from another country, the first thing on his/her mind is to get the currency of another country converted to his/her nation’s currency. It is really difficult to have this process done on one’s own as one is bound to know the rate of exchange prevailing between the native country and the other country. Despite referring to various financial newsletters, the calculation could be troublesome. This dual task of knowing the exchange rates and mathematical calculations is performed by tools called currency converters. There is a huge number of currency converters available in the financial market today, most of them being available online. Despite this financial market's overwhelming size, when it comes to conversion of currencies, the concepts are pretty simple. Some of the basic concepts essential for all foreign exchange (forex) investors are listed below.
Currency market is hugely dependent on economy of eight majors or countries to deal with this market, one has to judge carefully which will of these majors provide the best undervalued and overvalued opportunities of making gain. The concept is quiet different from the stock market, where investors have numerous options available from stocks all over the world. The eight majors of the currency markets are given below:
The financial markets of these eight majors are highly sensitive and sophisticated. The markets of these countries can provide great opportunities of earning interest on income with some very good amount of credits and liquid financial instruments. The financial markets of these majors release information about their financial uphold in an economic data, which is released on daily basis for the public interest.
An example providing detail of currency converter is given below:
The example focuses on the Universal Currency Converter®, which is efficient enough of converting currencies from 85 different countries. It contains a list which keeps the name of most popular countries on priority and special indications are given to special units and precious metals at the end.
The XE Universal Currency Converter®, which is cited as one of the world's most popular tool for currency conversion, allows the user to calculate foreign exchange and currency conversion by employing the state-of-the-art and live currency rates of the mid market.
The instructions to operate most of the currency converter tools available in the market involve typing the amount of source currency in the input box. One may be required to include decimal point or commas. After this, the destination and source currencies are required to be selected by scrolling down the tool window. The results of currency conversion are then will be displayed.
Also, generally in all the currency converter tools, an asterisk, a (*) indicates if one or some of the currencies are obsolete or not in use.
When currency conversion and its tools are discussed, the important thing to remember is that return is driven by yield.
When one is converting currencies in the spot market of foreign exchange, two underlying currencies are actually getting sold and bought. As each currency is valued in relation to another, all the currencies are quoted in pairs. For example, in the currency conversion market, if it takes $1.35 to purchase one euro, this means that the EUR/USD pair is quoted as 1.3500.
In every foreign exchange conversion of two currencies, the end user is selling one currency and buying some other currency. If seen in totality, one is using the funds of one selling transaction in another purchasing transaction. In addition to this, every international currency in the world is aligned to an interest rate, which is set by the central bank of that particular currency's country. The user doing the transaction is supposed to pay for the interest on the selling currency. At the same time, the user can also gain by earning a handsome interest on purchasing the currency of a particular country.
For example, let us take the New Zealand dollar/Japanese yen pair (NZD/JPY) into account. If it is assumed that the interest rate of Kiwi currency is 7% and that of Japanese currency is 1%, Kiwi rates are 700 basis points and Japanese rates are 100 basis points. These basis points are calculated on the assumption that a basis point is simply 1/100th of 1% and the interest rates are calculated in basis points.