how is one currency more powerful than another? If you exchange $100 to 102 francs don’t you still have $100 but in francs?
In: 53
No. Two reasons.
First. Bottom line – no-one is trading in currency out of the goodness of their hearts. They’re in it to profit. And that’s going to cost you.
So – let’s say the published exchange rate is 1 franc to 1 dollar. If I sell you francs (Swiss maybe?), I want a profit. So I’ll only give you (say) 95 francs for your $100. And if you want to sell those 95 francs back to me, and buy dollars, I won’t give you $95 dollars – I’ll give you maybe $90 dollars and some change. You’ve swapped your currency twice, and lost money both times.
Second. The exchange rate fluctuates. It isn’t magic. It’s just what people are prepared to pay right now. If people suddenly decide that Switzerland is a good investment, they’ll want a better deal if they sell you their precious francs. Which is great if you’ve just bought some and want to sell them – you can get more dollars for them. But it’s lousy if you were planning a trip to Switzerland and need to change dollars into francs, because your dollars won’t buy as many francs, so your money won’t go as far.
Latest Answers