Importance of Foreign Exchange

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Every country has their rate of currency. So, to make international trade it will involve the exchange of currencies. Foreign exchange rate is being defined as the rate at which a country’s currency may be changed or converted into another currency of the other country. https://www.compareremit.com/money-transfer-guide/key-factors-affecting-currency-exchange-rates/

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“Importance of Foreign Exchange”

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 It has been a violent year for the world economy, which in numerous quarters is still recouping from the profound financial stuns of the 2008 worldwide financial emergency. A number of markets, Greece and Brazil among them, are battling with continuous challenges of declining financial development, moo commodities costs, tall expansion, and powerless adjust sheets.

Unnecessary to say, budgetary markets do not bargain well with fear. Concerns over these progressing financial challenges have put a parcel of weight on neighbourhood monetary forms and created a few outstanding shifts in outside trade rates in 2015. In specific, numerous developing showcase monetary standards have debilitated over the past year against the US dollar and British pound. This has driven in turn to more hypothesis as to how winning money patterns over 2014 and 2015 may impact understudy versatility going forward.

There is of course a linkage between remote trade and request for think about overseas. It emerges from the basic reality that in the event that your domestic money debilitates against the cash of the consider goal you have in intellect, your consider program successfully gets to be more costly. You require more of your nearby cash to pay educational cost and living costs in dollars or euros or pounds while overseas.

The foreign exchange rate to a government that sponsor it’s students’ cost of education overseas is very important as the government will be the one who is responsible to pay the education fees of the students. Government will normally sponsor students to study in the local universities as they do not need to convert the currencies and to prevent the outflow of money of the country. They will need to reduce the rate of depreciation of the currency of the country. So they will only sponsor those who are extremely good in studies for overseas education.

Foreign exchange rate is relatively important to the government in sponsoring the student’s costs of education at other countries. If the government send the students to another country which has a lower currency, the government will save more money. For example, if Malaysia government send the students to Taiwan for higher education, they will need to change the currency of Ringgit Malaysia (RM) to Taiwan currency, which is Taiwan New Dollar (TWD). The foreign exchange rate will be affected by the rate of currency of another country. In this case, when with the highest rate of currency, RM 1.00 can be converted into TWD 7.5582. Where this means that with the lowest rate of currency, RM1.00 can only be converted to TWD7.0188. If they convert RM10, 000.00, they will get the amount of TWD70, 188.00. The difference between the highest and lowest rate of currencies is TWD5, 394.00, which is consider as a lot.

By sponsoring the students for education overseas at somewhere which has a higher currency than Malaysia, the government will be very concern about the rate of currency. When the government sponsor a student for education in America, they will need to change the currency to USD. For example, the school fees of a single student are 2,000.00 USD, government will need to convert with the amount of RM7724.00 with the higher rate of RM 3.86 to 1.00 USD. However, during the old days when the world economy is good, it only takes RM5, 860 to get 2,000.00 USD, with the rate of RM2.93 to 1.00 USD. The difference between the higher and lower foreign exchange rate is RM1, 864.00 so that it means the government need to spend extra money in order to get the amount needed for the fees of the student.

By converting the money to a country which has a higher currency than Malaysia, Ringgit Malaysia is actually depreciating due to the outflow of cash. In this situation, the money of our country is going out to the other country. For example, a student is being sponsored to study at Singapore sponsored by Malaysia government. The fee for a semester is 2,000.00SGD. If the foreign exchange rate is 1.00SGD to RM2.90, then it means the Malaysia government will need to pay a total amount of RM5, 800 for the school fee.

Since every country has their own currencies, they need to convert their currencies in order to trades. In this case, foreign exchange rate is will influence the international trade too. When the foreign exchange rate drastically grows from RM2.90 to RM3.50 for 1.00 SGD, it means that Singapore Dollar increase its value by comparing to Ringgit Malaysia. It means Ringgit Malaysia losses its value, so in this case means the currency of Malaysia is depreciated by 20% (Rm0.60).

Foreign exchange rate is going up and down, changing each day. This is due to a few factors that influence the foreign exchange rate which are the price of traded goods, the rate of interest, the level of inflation on goods and also the peoples’ income in a country. The price of traded goods or services is the main factor which can determine the demand and supply. For example, if the Singapore Universities offers school fees cheaper than the Malaysia school fee, they can attract more people to go study at their country. Singapore increases the intake of overseas students, causing a hike in the demand for the local currency. This means the value of Singapore currency will be stronger whereas the Ringgit Malaysia will be devalued.

Malaysia government is extremely concerned about the foreign exchange rate due to the sponsoring of students for overseas education. They will need to find a way to convert the money at the higher rate as they want to reduce the extra fees. Malaysia government need to make sure that they can maintain the value of Ringgit Malaysia, preventing depreciation. If Ringgit Malaysia depreciates drastically, the whole country will face economic crisis. More and more people will lose their jobs as companies tend to lay off their employees to maximize their profits. If too many people lose their job, Malaysia will be in a big trouble. The people of the country will suffer as they will need to find another way to earn salary in order to make both ends meet. Malaysians will be forced to leave the country to find jobs. This will cause the loss of population.

Foreign exchange rate is very important for the government which sponsor those students for overseas education as they will spend more unnecessary expenses through converting the currency. If they do not sponsor students to overseas for further studying, they will save a lot more money if they only sponsor students studying in Malaysia itself. This can even boost the country economy as not as much cash flows out to the other country. By this, country can earn more money as those tourists came to spend their money in the country and less money is being spent at the overseas places, this can help to increase the value of the currency of Malaysia.

Besides, foreign exchange rate is extremely significant as the government need to prepare enough budgets for the sponsor funds. They need to know the amount to prepare in order to cover all those expenses for the student’s education fees. They must make sure that they got the enough funds to pay the fees and some for the students’ pocket money. The government need to correctly make sure that the currency changed is enough for the expenditure.

The government sponsoring its students to study abroad is because they want to develop their understanding of the world’s culture, languages and business method so that the student could come back and bring back the culture. In addition, foreign exchange rate is relatively important due to the currency of our country is low. The government might need to spend a lot of money to convert to the same amount of money needed at the other country.

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Importance Of Foreign Exchange. (2019, Dec 04). Retrieved February 6, 2023 , from
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