currency exchange

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Currency exchange

Introduction

While currency refers to a generally accepted medium of exchange, currency exchange is the course of action international traders converts one currency for another currency. This depends on the prevailing exchange rates in the market. The rate at which one currency is exchanged with another is dependent on a number of factors. This is the reason why the currency exchange rates keep on fluctuating. However, it is necessary to note that most of the factors in play, in currency exchange rates, are majorly economical. This means that the prevailing currency exchange rates is influenced by e invisible hands (Atkeson, & Burstein, 2031)

Significance of currency exchange

The fluctuation in the exchange rates is of much importance than stable currency exchange rate because of the fundamental befits such as unpredictability of the system and stability of economies. If the currency exchange rates were easy to predetermine or fixed, most economies would be unstable because that will be free economy in which would undermine most developing countries. It is noteworthy that the exchange rates be varied and dynamic to stabilize then investment market. A fixed exchange rate would simply allow for economic crisis. It also pertinent to note that a dynamic exchange rate is essential for a strong economy and economic development of a country because, s fixed or pegged exchange rate would make a country’s currency overvalued. An overvalued currency makes it hard for a country to convert its currency to another currency. Take for example, the case of Great British pounds and Zimbabwean currency.

How to convert us dollars to Japanese YEN

The currency is exchange rates vary from time to time as mentioned before. Atkeson, & Burstein, (2071), base this on factors such as the economy of the country and the trends. However, to convert one currency into another, the currency exchange rate is multiplied by the value of the currency. For example to convert USD into JPY, one multiplies the USD by the prevailing equivalent value of the USD, in JPY.

The prevailing currency exchange rate for the US Dollar against Japanese yen is as shown bellow

Mid-market rates: 2012-02-07 20:34 UTC

     

1.00 USD = 76.7968 JPY

US Dollar  Japanese Yen1 USD = 76.7968 JPY   1 JPY = 0.0130214 USD

This shows that if the value of the house in Japan is 7million JPY; the amount is divided by 76.7968 JPY to get the value of the house in USD. Nevertheless, the economic value of the house is changed into USD by multiplying the value of the house in JPY to USD by multiplying the amount by 0.0130214USD. The USD is worth more in value consider the strength, this means that if one has the USD and would like to convert it into JPY he will have more money than someone with the JPY converting to USD did. As shown below:

Value of the plot in japan7000000 JPY

     

7,000,000.00 JPY = 91,126.26 USD

Japanese Yen  US Dollar1 JPY = 0.0130180 USD   1 USD = 76.8165 JPY

While banks are responsible for the transaction due to security and money laundering reasons, it is advisable that people have a rough knowledge of the prevailing market value of any currency at any one time. These currency exchange rates are readily available over the internet and updates are real time. It is advisable to take the foreign currency to banks in the country of interest and or visit the forex exchange companies for conversion (Burnside, Kleshchelski, and Rebelo 6723)..

How to convert payroll into the prevailing currency

Trends

A number of factors determine the prevailing pay one is entitled. For example, factors such as; the academic qualifications, experience, knowledge, and competence of the employee are worth considering. Once the employee is selected, the payroll should be above or equal to the pay grade setting the country of interest. Once this company has arrived at the standard pay grade and has determined the amount to pay, the company has to convert the money into an equivalent local currency. Because, for a US company operating in Japan, the local employee in Japan may feel that the pay is low, so it is advisable to convert the currency to a local equivalent amount a]while paying the workers. However, international companies should pay more than the local companies due to logistical reasons should. The trend is instrumental in assessing the value of the currency or pay considering the respective stasis of the pecuniary system maintained by the respective countries

Economy and exchange rate risk

The employer should also consider the economy of the country he is trading in before setting the amount to pay the workers. For example, if he establishes a business in developed country, the payroll should be set on then currency of the country, however, for a developing country, he can set the payroll on the country of origin (the US) or the local currency depending on the country with a strong currency.

Conclusion

While the pegged system is advantageous based on the inherent characteristics, the floating system promises much in terms of stability of the economies. It also helps in the elimination of the market panic and economic crises. Therefore, it is advisable to maintain a floating exchange rate to help in managing the investment market.

Works cited

Atkeson, A. and A. Burstein: Pricing-to-Market, Trade Costs, and International Relative Prices,” American Economic Review, 98, 1998{2031}. (2008). Print

Burnside, A., I. Kleshchelski, and S. Rebelo: Do Peso Problems Explain the Returns to the Carry Trade?” CEPR Discussion Papers 6873, C.E.P.R. Discussion Papers. (2008). Print.