In finance and economics, the term currency exchange rate refers to the amount and rate to which one nation’s currency can be exchanged for another country’s currency (O’Sullivan and Sheffrin 1). Put simply, it is the value of a currency in comparison to that of another. The currency exchange rate is in the heart of the global economy, as it assures trade between two or more countries through the realization of a return on investment for companies that operate globally. Though currency exchange rates affect trade, they are also affected and influenced by a number of things, such as the interest rates, and the balance of trade (O’Sullivan and Sheffrin 21). Currency exchange rates, just like any other components of the business, are greatly dependent on the economics of demand and supply. If the demand for one currency is higher than that of another currency, then the former is likely to be of a higher value than the latter.
This paper examines the significance and differences in foreign currency exchange rates. The paper also provides an explanation of how to convert the US dollar into the euro, as well as, the procedure of converting a payroll into a prevailing currency when operating a business in a foreign currency.
Significance of the Currency Exchange Rate
As previously mentioned, currency exchange rates affect international trade, and for that reason, they are considered the heart of globalization. Accordingly, currency exchange rates are important because they regulate the level of import and export in countries (O’Sullivan and Sheffrin 4). This, in turn, determines how rich or poor a country will be in the long run. In essence, if a currency appreciates imported goods are automatically expensive in the global market and cheaper in the local market. This then means that a country will benefit from its exports, as the country’s currency rate makes it competitive in the international market.
Differences in Foreign Currency Exchange Rates
Foreign currency exchange rates differ in value, with the larger economies benefiting by having a high value in their currencies (O’Sullivan and Sheffrin 451). The differences in foreign currency exchange rates are dependent on the demand and supply of the currency. If there is a high demand for a currency, the currency will be of a higher value than when the demand is low.
Converting the US dollar into a Euro
When converting one currency to another, one must first consider the stock exchange rates of these two currencies so as to determine how much of one currency will be exchanged for another. The current exchange rate for the US dollar in relation to the euro is €0.7624 per Dollar rate or $1.3116 per Euro rate (fx-rate.net 1). For that reason, exchanging $50 would equal €38.12. Notably, the euro is of a higher value than the US dollar.
Converting payroll into foreign currency is one of the hardest tasks that businesses are faced with. Before converting the payroll, the business needs to be conversant with the requirements of the foreign country such as taxes, currency differences, pensions, as well as, social insurance contributions (Weiss 1). The process for conversion is the same as that of converting money in the bureau. If the foreign currency is higher in value than the local currency, then employees will be paid less as opposed to if the foreign currency is lower in value. The amount of money to be compensated to employees will however be dependent on the labor laws in the foreign country.
“Dollar to Euro Conversion Table”. fx–rate.net, 7 February 2012. Web. 7 February 2012.
O’Sullivan, Arthur and Steven M. Sheffrin. Economics: Principles in action. Upper Saddle
River, New Jersey: Pearson Prentice Hall. 2003. Print.
Weiss, Darryl. Opening in a Foreign Currency. globalhrnews.com, nd. Web. 7 February 2012.
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