Currency Pairs And Their Influence On Your Currency Transfer

There are five major and numerous minor currencies in the world

, and the currency pairs they form can influence the cost and the total final value of your currency transfer.

Sending money from Point A to Point B within a country is relatively easy and the cost of this currency transfer is determined only by the fees of the service provider you have selected. Transferring money abroad is something different: it involves not only the fees and charges but also the currency exchange rate between two particular currencies called a currency pair. In the Forex market, the value of a currency is determined in terms of another, thereby forming its price. The initial currency is referred to as base currency, whereas the currency to which it is compared is called quote currency. Basically, this means that you need a certain amount of currency X to purchase one unit of currency Y.

Thus, if you are sending, say, GBP 100 to a relative of yours in Australia, he will receive the money after they are converted into Australian dollars, unless he possesses a bank account in British pounds. Even if so, he will have to utilise this ?100 to purchase as many Australian dollars as GBP 100 can buy. Obviously, this mechanism influences not only the cost of your currency transfer but it also affects the final value of the money received. You can hedge against the currency risks by using currency options but it is a good idea to consult an expert before doing so.

In fact, all currencies are traded in pairs and Forex brokers quote them using the format AAA/BBB, where AAA stands for the base currency and BBB is the quote currency (for example GBP/AUD). It is very hard for an individual to take advantage of the fluctuations of these currency pairs because one has to trade them in large volumes to earn a profit and be able to get a favourable currency exchange rate.

Most of the trades on the Forex market, up to 90% of the daily volumes, involve the six major currency pairs or majors: EUR/USD, GBP/USD, USD/CHF and USD/JPY,. There are also cross rates, called crosses, in which the U.S. is not involved. Some of the most popular crosses include: GBP/JPY, GBP/CHF, GBP/CAD, EUR/GBP, EUR/CHF, EUR/JPY and EUR/CAD.

Companies specialising in currency trade and transfers frequently utilise alongside major currency pairs various exotic crosses to offer a favourable exchange rate to their customers. However, one must have deep knowledge of exotic currencies to profit from such crosses because very often the market for exotic currencies lacks liquidity and they are not quoted on many Forex trading platforms. Moreover, to profit from exotic or uncommon currencies sometimes several trades between different currencies are required and one could not expect to be successful in conducting such deals unless he is an experienced Forex trader.

Keeping an eye on the development of currency pairs can help choose the right time to make a currency transfer abroad but it is better to consult a specialised company when the matter in hand is to get a favourable exchange rate for a particular currency pair.

by: Justin Thomas

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