Understanding RBC Exchange Rate And How It Is Determined
Foreign currency exchange is a concept that isn’t too foreign even for the common people: when buying goods and services from abroad, customers usually pay in foreign currencies, when remitting money from one country to another, currencies need to be exchanged for them to be useable in the other country. It is such a common place to check the RBC exchange rate every so often before undergoing any transaction. Similarly, many seek the services of companies such as KnightsbridgeFX to expedite the exchange process in very easy steps, for a very reasonable price. However, to be more aware of how these transactions happen, it is important to understand how the whole system works.
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Foreign exchange rate is basically the domestic currency’s value compared to foreign currencies. For example, how much does a dollar in the United States cost in terms of euros. There is what is called the real-time foreign exchange rate. This is the rate determined in the foreign exchange market. RBC exchange rate and the exchange rate followed by other banks and currency exchange companies is different from this, as the real-time foreign exchange rate does not include profit, and other additional fees. This now leads to two questions: who determines the real-time foreign exchange rate and how does it happen?
There is no single institution considered as the authority in determining the real-time foreign exchange rate. Rather, it is the result of trading and transactions between and among investors, brokers. Investment management firms, central banks, other participating banks, and international corporations. Those busy movie montages of traders busy on the phone looking at the clock and the exchange rate, trying to trade before the time ends? All those things factor in in determining the exchange rate. Because trading is not a constant process, and results may vary from one day to another, the foreign exchange rate fluctuates as well. This is determined by how much participating parties are willing to spend in buying and selling a specific currency. A good rule of thumb in understanding this concept is that if the currency has high demand, its exchange rate is high as well.
The reason why foreign exchange services charge fees is because they are a business. They need the profit to run the company, pay its employees, conduct business transactions, and communicate with banks and clients, and more. However, online foreign exchange companies are starting to be more transparent on this regard, which gives people an opportunity to choose where they want their currencies exchanged, and find a deal that they think is best for them.
