How Do Currency Exchange Rates Work?

You’re about to take off on an international trip, and your luggage has already been packed. Everything’s set up passport, tickets, hotel reservations, even the itinerary. But wait! You realize that when you checked with the airline, they quoted you a price for one particular ticket in U.S. dollars. The problem is, those dollars are worth less than they used to be. So how much should you actually pay for that ticket?

If you were back home using your local bank or credit union, this wouldn’t matter so much. They’d convert your money into their own currency, then give you whatever amount was required to get you where you needed to go. In other words, if someone handed them $100 U.S., they could easily turn around and hand over $120 Canadian (or some other currency). As long as you had enough cash on you to cover the difference, you’d be fine.

But when we travel internationally, things change a bit. First of all, there may not be any banks available at our destination. Second, the currency might be different from ours (and therefore different from the currency we use locally), which means that converting our money isn’t quite as simple. And thirdly, many countries don’t allow us to simply walk into a foreign country and try to spend our hard-earned American bucks like we would at home.

So what happens when we need to make changes to our itineraries because of currency fluctuations? We can either choose to fly at a higher cost or find out what our money will really buy once we arrive. Either way, knowing more about these issues beforehand can help save time and stress later on.

The Meaning of “Currency” Rate

When you hear people talking about currency, they’re usually referring to something called the “convertible currency.” This is any type of currency that’s pegged to another currency.  For example, the United States Dollar (U.S.) and the Euro are convertible currencies. 

With convertible currencies, whenever the value of one of the currencies drops below its value against the other, the weaker currency automatically adjusts itself upward. Let’s say, for instance, that the Euro suddenly goes down in value against the U.S. dollar. If the Euro falls to $1.10 per U.S. dollar versus $1.00, each Euro becomes $0.90.

This process works in reverse, too. When the value of one currency rises above the other, the stronger currency will adjust downward. Let’s say for instance that the U.S. dollar shoots up to $1.50 per Euro. At this point, each U.S. dollar buys more Euros than before, since $1.50 is now equivalent to $1.80.

In order to keep their values stable, convertible currencies must be adjusted every few weeks by government officials known as central bankers. These adjustments are made through open market operations, meaning that these currencies’ values are determined by supply and demand. 

Central banks also control interest rates. Since most countries peg their currencies to the U.S. dollar, this affects prices everywhere. That’s why you’ll often see headlines saying that “the dollar fell,” rather than “the Euro fell.”

While currencies aren’t technically real objects, they still represent actual amounts of goods and services. So if you want to understand how currencies affect prices, think of them as coins. A coin represents 100 units of a certain commodity. One hundred quarters equals $25, while 2,000 pennies makes $5.

Now let’s talk about how currency tables are calculated.

Exchange-rate charts show how much various currencies are worth against each other. On average, the rate fluctuates a little every day, although the overall trend is pretty predictable. Here’s how it works:

A currency exchange rate tells how many units of one currency you need to purchase with a unit of another currency. Some examples include:

  • $1 British pound = $2.22 Indian rupee
  • 1 U.S. dollar = 0.97 Japanese yen
  • 1 Australian dollar = 14 Norwegian kroner
  • 1 Swedish krona = 0.77 Danish crowns

Once you know the exchange rate between two currencies, you can determine how much money you need in one currency to buy an item priced in another. For instance, if you’re traveling to London and you want to buy a book from, you can look at the exchange rate between the U.S. Dollar and the Pound Sterling. 

Using the conversion chart, you can figure out that $3.75 U.S. Dollars will buy you one pound sterling. Once you have this information, you can decide how many books you want to buy based on how much money you have.

  • An increase in inflation results in a decrease of purchasing power.
  • A decrease in income due to unemployment causes a decrease in spending.
  • War causes a decrease in spending.

Government intervention such as tax increases, economic stimulus packages, etc. Let’s take a closer look at how currency exchange rates work.

Understanding Exchange-Rate Tables

The next step after learning about how currencies work is understanding how currency exchange rates are calculated. There are several methods, including floating and fixed exchange rates.

Floating rates are determined by supply and demand. However, unlike convertible currencies, they aren’t locked in place. Instead, they tend to fluctuate daily. Most economists consider this method unstable.

Fixed rates are considered the safest option. Generally, they’re pegged to another currency, like the U.S. dollar, making them relatively consistent. However, since these rates only reflect supply and demand, they don’t necessarily guarantee stability.

There are three main factors that influence exchange rates:

Demand – Demand is defined as the total amount of goods and services that consumers desire. The greater the demand, the lower the rate.

Supply – Supply refers to the total amount of goods and services that producers can produce. The fewer products produced, the higher the rate.

Reserve requirements – Reserve requirements refer to the number of reserves held by a given nation’s central bank. Reserves consist of cash, gold, silver, and other assets. If a country needs extra cash, it borrows from another country whose reserve holdings are low. 

Thus, the reserve requirement tends to drive exchange rates downward. Conversely, if a country doesn’t require additional funds from the outside world, its central bank reduces reserve requirements, thus raising the exchange rate.

Another factor influencing exchange rates is confidence. Confidence plays a big part in determining whether investors will invest in stocks or bonds. Investors feel confident that a company’s stock will rise, so they put more money into buying shares. If investors lose faith in a company, however, they’ll pull out their investments, causing the price of the stock to plummet. This can cause a chain reaction, leading to further losses.

The final factor affecting exchange rates is capital flows. Capital flows occur when a person exchanges his or her money in one form for another. This can result in an influx of cash into a country, driving the exchange rate upwards. Or, if there’s a large outflow of capital, the exchange rate dips downwards.

Knowing all of this, let’s return to the original question: Why does it matter what your money is worth?

It matters because it will affect how much you can afford to spend. If you have a lot of vacation saved up in the U.S., but you’re planning to spend it in Europe, you can expect to spend more than you planned.

On the flip side, if you’re saving up for a European holiday, you can shop around and compare prices until you find the best deal. In addition, knowing what your money is worth helps you plan your budget.

Why Does It Matter What Your Money Is Worth?

Knowing what your money is worth is important for a variety of reasons. Knowing how much your money can buy in different places allows you to maximize your trip. For example, if you’re planning to stay longer in Paris, knowing that a gallon of coffee costs €4 ($6) compared to €2 ($3) in New York City lets you splurge on coffee without breaking the bank.

Traveling overseas offers all kinds of unique experiences. Learning about the culture and economy of your destination gives you a better idea of how to navigate the area. For example, let’s say you want to visit Rome. By doing research ahead of time, you’ll learn that a pizza costs about €9 ($13) in a restaurant there. 

Essay on why inflation can be good for the economy?

The price of a gallon of milk might not seem like much to you just $2.50 on average nationwide but consider this: If it were priced at $9.99 per gallon, it would cost consumers an extra $7 billion each year due to inflation, according to the Bureau of Labor Statistics’ Consumer Price Index (CPI) report. And that doesn’t include other things we pay for regularly, such as gasoline, food, rent, and utilities.

If you’re a parent, think about how inflation could affect your child’s college savings plan. A $10,000 investment today will grow to $11,118 by 2039 with 5 percent annual inflation, based on data from By contrast, investing $10,000 now grows only to $8,816 in 2039 with no inflation. That’s a difference of $1,212 over two decades.

That may seem pretty insignificant when compared to the overall economy, but inflation is one reason why economists have warned people against putting all their eggs into one basket. When inflation gets out of control, it hurts savers and encourages spending.

But what does inflation mean exactly? Simply put, inflation occurs when the general level of prices goes up across the board. The rate at which these prices are rising determines whether inflation is mild, moderate, or severe. Severe inflation rates range between 3 and 4 percent annually while moderate range between 2 and 3 percent, according to the Federal Reserve System. Mild inflation rates fall between 1 and 2 percent.

While inflation isn’t necessarily “bad,” there are some exceptions. For example, when inflation is low, companies aren’t able to raise prices as high because they don’t want to lose customers. But when inflation increases, companies usually do increase prices so they can make higher profits and attract new clients.

How Does Inflation Affect Economic Growth?

According to many economists, inflation has had a negative effect on economic growth ever since President John F. Kennedy signed the Economic Report of 1963, which set federal interest rates too aggressively during his administration. These interest rates held down consumer demand and made it harder for businesses to expand.

Since then, inflation has been blamed for causing recessions in 1973-1975, 1980-1981, 1990-1991, 2001-2002, 2004-2005, and 2007-2009. During those periods, unemployment rates went above 7 percent for several months, which was twice the national average at the time.

So why did inflation cause recession after recession? Economists say it comes down to supply and demand. The problem wasn’t that businesses weren’t making enough profit, but rather that consumers didn’t spend their money in other ways, such as saving it or investing it instead. When consumers save less and invest more, banks stop lending them money because there isn’t enough cash around to lend. This causes a chain reaction throughout the economy, resulting in lower production and fewer jobs.

To avoid another recession, the U.S. government needs to keep inflation under control, especially when the country is experiencing strong economic growth. To prevent inflation, the government must create more jobs, improve the quality of existing jobs and encourage citizens to spend their money.

One way to do this is through monetary policy, also known as controlling the money supply. The goal of monetary policy is to maintain stable prices and maximize employment levels. There are three main tools used to accomplish this: open market operations, reserve requirements, and special drawing rights. Open market operations involve buying and selling treasury securities.

As part of its open market operations, the Fed buys bonds back from investors and sells them to the public to reduce the number of available funds. Reserve requirements require banks to hold certain amounts of cash reserves, which helps slow down the creation of more money. Finally, special drawing rights allow central banks to purchase commercial paper issued by member countries without having to convert it into cash first.

Monetary policies can help combat inflation, but they can also hurt economic growth. For example, to fight inflation, the Fed raised interest rates sharply in 2003 and 2004, which slowed down business expansion. On top of that, the Fed increased the size of its balance sheet  meaning the total amount of bank deposits it owned from $900 billion in 2002 to $3 trillion in 2008. 

Because banks were required to keep larger balances, they started hoarding the money instead of using it to loan more people money. With less liquidity, banks couldn’t give loans to small and medium-sized businesses, which were essential for creating jobs. This led to slower job growth during 2005-2006.

What Causes Inflation?

There are many factors that influence inflation, including taxes, energy costs, international trade, and even the weather. Let’s take a closer look at what influences inflation most.

Taxes are often considered a major factor in inflation, but it depends on who pays the tax. If the burden falls on workers, then employees end up paying more for necessities like gas, groceries, and housing. However, if employers bear the burden, then companies pass along the cost to customers. 

According to a study published by the Organization for Economic Cooperation and Development (OECD), the United States ranks 15th among 34 OECD nations for corporate income tax rates. Meanwhile, Japan ranks first with a rate of 24.5 percent, followed closely by Singapore with 23.6 percent.

Energy costs also play a big role in keeping prices high. Since oil accounts for roughly 40 percent of U.S. imports, rising fuel prices lead to higher inflation as well.

Trade barriers can also increase inflation. In 1979, Congress passed legislation designed to protect American industries from foreign competition. One result of this law was tariffs, which added about 8 percent to the price of imported goods. Tariffs are charged when buyers import products from outside the United States. They are meant to discourage exports, but they actually cause inflation by raising prices for everyone.

Finally, the weather can impact prices. Rainfall affects transportation systems more than any other factor, accounting for nearly half of the increase in transport costs.

With all these variables, figuring out the exact causes of inflation can be tough, but here are some common culprits:

Food Prices: Rising food prices caused both the 1970s oil crisis and the Great Depression. After World War II, farmers received huge subsidies to produce more crops, and this continued until 1977. Due to high crop yields, the government gave farmers aid money to buy seeds and fertilizers, which increased the prices of agricultural goods.

International Trade: International trade makes up about 30 percent of U.S. GDP and has become increasingly important in recent years. Imports account for nearly 60 percent of U.S. consumption expenditures and provide cheap commodities that drive up labor productivity. But this also leads to inflation because manufacturers pass along the costs to consumers.

Interest Rates: Interest rates directly affect loan availability and prices. During the Great Recession, the Federal Reserve lowered interest rates in response to falling stock markets. The stock market eventually recovered, but the damage done to home values and personal wealth remains.

Some economists believe that the best way to fight inflation is to eliminate the fed budget deficit entirely. Eliminating the deficit would decrease the number of dollars circulating in the economy, allowing the Fed to adjust interest rates more easily. Others argue that reducing deficits won’t solve inflation problems alone. Instead, they’d need to focus on increasing domestic output.

Goods vs. Services: How does inflation compare to wage growth?

After the 1970s, economists debated whether the goal of the free enterprise system should be price stability or economic growth. Many believed that price stability would promote greater long-term economic growth. Some argued that inflation was necessary to stimulate growth and help companies compete globally.

However, others said that inflation can stymie growth and ultimately hurt the economy in the long run [sources: Wrenn, Ruhm]. For example, the late Harvard economist Gregory Mankiw says that although short-run fluctuations in inflation and real GDP are correlated, the relationship becomes weaker over longer periods. He argues that because inflation eats away at future purchasing power, it holds back economic growth.

Economist Milton Friedman agreed, arguing that inflationary pressures hurt economic growth because they force workers to cut back on discretionary purchases. He believed that the solution to inflation was for governments to control wages and salaries.

Other economists disagree and say that fighting inflation requires stimulating the economy to boost demand for goods and services. In other words, inflation helps stimulate the economy, whereas slowing down the economy hinders inflation.

Today, many economists recognize that inflation and economic growth don’t always go hand in hand. In the next section, we’ll discuss how inflation and economic growth work together.

The debate rages on regarding the effects of inflation on economic growth. While some economists believe that inflation stimulates economic growth, others claim that inflation impedes economic growth.

Studies show that inflation has different results for various parts of the economy. Inflation stimulates economic growth in industries where supply and demand remain constant, such as retail sales.

5 Reasons Why Finance Is Important in Today’s Business?

Do you often wonder what the point of having an accountant is? Do you find yourself wondering if there is any real benefit for businesses to have accountants or financial advisors? Or do you just see them as a necessary evil that has to be paid for anyway? If so then I would like to give you five reasons why finance is important in today’s business. These will hopefully show you why accountants and financial managers matter…

It Helps You To Manage Your Money

The first reason why finance is important in today’s business is that it helps you manage your money. Without managing your finances effectively, it is very difficult to create a healthy cash flow position. This means that you’ll not only lose money on unnecessary spending but also miss out on being able to make sound decisions when it comes to investing in future growth opportunities. So with this in mind, having the right information at your fingertips should allow you to make better decisions about where to invest your time and resources.

This is particularly true in terms of making sure you allocate enough funds to pay off debt and other liabilities (as well as putting aside some savings). This is especially relevant during times of recession when many people feel that their personal budgets may need to be tightened to survive financially. However, even if you’re currently experiencing good economic conditions, you still want to ensure that you don’t over-extend yourself by taking on too much credit/borrowing.

When you look back at history, we’ve seen numerous instances where countries such as Greece, Ireland, and Spain have all been brought to their knees due to poor budgeting and financial management practices. When things get tough, it pays to know exactly where you stand financially.

It Can Help You Save & Increase Your Profits

Secondly, it can help you save and increase your profits. With increased awareness around the importance of saving for retirement, more companies now offer solutions for employees who wish to take charge of their own pension fund. Many employers provide employee assistance programs which include financial planning services, tax returns, investment advice, etc…

Many small business owners are also looking into various ways to cut costs and improve efficiency. They are therefore seeking out expert advisers and consultants to assist them in achieving these goals.

In addition to increasing your bottom line profit margins, by getting the right advice from qualified professionals, you’ll avoid costly mistakes that could potentially cost you thousands of dollars in lost revenue.

For example, if you were to hire a new employee without first checking his/her references, you’d end up hiring someone who doesn’t turn out to be competent enough to handle the job. But if you hired someone whose references checked out, you’d save yourself a lot of heartaches.

It Gives You A Competitive Edge In The Market

Thirdly, it gives you a competitive edge in the market. Although it might seem strange, one of the key factors that determine success within your industry is actually how efficient your company’s operations are. By ensuring that you have effective internal controls in place, your customers will appreciate knowing that they can trust your products and service.

Another way to gain customer loyalty is through providing exceptional levels of after-sales support and maintenance. Having a strong relationship with your customers enables you to build stronger brand names and maintain positive word-of-mouth referrals.

However, if you’re struggling to keep track of your expenses, or if you’re not sure how to properly plan your income, then you won’t be able to retain your existing clients. Furthermore, you won’t be able to recruit new ones either.

As far as your competitors go, they will always try to beat you down by offering lower prices, bigger discounts, and faster delivery times. So how do you overcome this? One way would be to work harder than your competitors to deliver higher-quality products and services.

Or alternatively, you could follow the lead of many successful entrepreneurs in today’s marketplace, and use marketing strategies to attract new customers. Once again, it all boils down to how efficient your company’s operations are.

It Keeps You On Top Of Things, As Well As Protects You From Financial Ruin.

Fourthly, it keeps you on top of things, as well as protects you from financial ruin. This is another area that many small business operators struggle to excel in. How many hours per week do you spend keeping up with your latest product launches and promotions? Not many, right? We all tend to fall victim to our busy lifestyles and forget to check in with ourselves from time to time.

But as human beings, we all require regular breaks, otherwise, we risk burning out quickly. The same principle applies to running a business. One way to protect yourself against burnout is to set clear goals and objectives and measure your progress towards those goals regularly.

It’s also worth remembering that although it is important to monitor your performance, don’t let your emotions cloud your judgment. Don’t become obsessed with trying to please everyone. Remember that you’re ultimately responsible for setting realistic expectations for your team members.

At the same time, while it may be tempting to focus on short-term gains, don’t neglect long-term investments. For example, instead of focusing solely on short-term targets, consider using a balanced approach whereby you aim to achieve both short and medium-term goals simultaneously.

Furthermore, when you experience setbacks, remember to stay focused on your overall goal. After all, it’s easy to become disheartened and start questioning whether you’re capable of doing things on your own. This is precisely where most small business owners fail.

Instead, you must learn how to remain calm and collected when things aren’t going according to plan. During challenging times, it’s all too common to panic and starts feeling overwhelmed by everything that needs to be done. Instead, try to step away from the situation for a few minutes and reflect upon what went wrong.

Only once you’ve identified the problem, can you begin to develop solutions to solve it. Finally, remember that no matter what happens, you shouldn’t lose sight of your vision. Always strive to keep your eye firmly fixed on the ball, and never deviate from your course.

It Makes Your Organization More Sustainable For Long-Term Growth And Success!

Lastly, it makes your organization more sustainable for long-term growth and success. As mentioned above, there are countless examples of countries failing simply because their governments did not implement sound financial policies.

On the flip side, however, there are plenty of examples of organizations succeeding despite the odds. One of the main reasons why these organizations succeeded was because they had effective financial management systems in place.

Whether you believe it or not, the majority of small business failures occur simply because they weren’t equipped to deal with challenges that inevitably arise. Therefore, if you’re serious about growing your business, you’ll need to put in place effective systems and processes that will enable you to thrive in today’s volatile economy.

  • Understand your current financial status
  • Set clear financial goals and objectives
  • Create a detailed action plan for each year
  • Ensure that your team understands the importance of accurate accounting procedures
  • Review your business’ Cash Flow Statement every month


Finance isn’t rocket science. All it requires is basic knowledge and understanding of how the world works. However, like any field, it does require training and education. There are many highly skilled individuals who may have years of experience behind them, yet still prefer to “wing it” rather than educate themselves further.

If this is something you struggle with, perhaps you’ll find that attending a local college, university or event can help you to gain valuable insights into the world of finance. Alternatively, you may even decide to enroll in a part-time evening course to help you prepare for the next stage of your career. Either way, make sure that you choose a reputable source of academic material.

Finally, if you want to move up in your chosen profession, there are several online courses available that you can sign up for. Some of these courses are provided by leading universities whilst others are offered by independent institutions. Whichever route you choose, make sure that you take full advantage of any free trials that are on offer before committing to anything.

How does money have value ?

If you’ve ever watched the TV show “Money,” you know that figuring out how much your dollar is really worth can be pretty complicated. That’s because when economists look at something called an exchange rate, they’re trying to figure out what determines the actual value of one currency compared to another (in other words, how many Swiss francs or South African rand are equal in purchasing power to $100 U.S.).

But before we get into those specifics, let’s talk about what makes up the value of money. And while it may seem like a complicated topic, it actually has several components more important than others. In fact, the most importants concepts are also the simpler ones to grasp.

“There are six major factors that determine the value of any given currency,” says Chris Lowman, chief economist at FTN Financial LLC. “They range from macroeconomic issues like interest rates to microeconomic ones such as inflation.”

What gives money value?

To put it simply, what gives money value is the promise that this or that amount of money can be, later, exchanged against goods or services. This promise is usually guaranteed by a state (fiat currencies) or people (bitcoin). Let’s take an example: France use euros since 2002, and was using the “franc” before that date. What happened is that, on that given date, France established that you’ll not be able anymore to exchange francs against goods and services. Instead, they have given the promise that the franc can be exchanged against euros, and then the euro was promised to be tradable against goods and services. And that’s all you need to create a currency out of thin air.

Now take a look at your bank account. All that money has value, because your country promised you that you can use that given amount to buy “things” to other people. If that promise goes away, other people (especially foreigners and other countries peoples) will probably not want to give you goods against your money and overnight it’ll become worthless.

Now that you know where does this value comes from, let’s see what can change the value any given money amount can represent.

How Does the Value of Money Work?

Here are the six key factors that influence the value of money:

Supply and demand

This refers to how many units of a specific type of currency exist in circulation. For instance, if people want to buy goods and services priced in U.S. dollars but only have cash available in euros, prices will adjust so that they can pay with the most widely accepted currency. This also means that when supply increases, the price per unit goes down.

In addition to this, demand plays a part in determining the value of a currency. If someone wants to purchase products priced in U.S. dollars, but their country only accepts Euros, then the demand would drive up the Euro against the dollar. Spread this across thousands of countries, thousands of currencies, millions of buyers, sellers, and transactions per day, and you’ll get a pretty accurate vision of our worldwide economic landscape.

Also when a country is printing money means that this money is created out of thin air, without any value backing it. Basically, the supply of money goes up, but the demand stay the same. Mechanically this drive the valuation of the money down, meaning the same amount of money equals fewer goods per unit. For example, during the covid pandemic, the US printed tons of money. Meaning, what you could be buying with 100$ before the pandemic now cost 120$ (for example) because everyone got free money out of nothing of value.

Capital flows and liquidity

Capital flow is basically the inflow of funds into different countries. When capital inflows increase, capital becomes more liquid. So if investors start pouring money into a certain nation’s bonds or stocks, confidence in that economy grows. The result is higher bond and stock prices, which translates into lower borrowing costs for companies and consumers alike. These savings provide a boost to the local currency, ultimately making it stronger. Again, the underlying effect is about supply and demand. If capital flow into a country and not into others, that means this country have mechanically more value than other countries.

Interest Rate

Interest rates affect both supply and demand. As mentioned earlier, when the amount of money flowing into a particular area increases, the prices of things bought with that currency decrease. On top of that, banks and businesses need loans to stay afloat, so they’ll borrow money at a lower cost. Lower borrowing costs make lenders feel confident enough to lend even more money, creating even greater demand for a given currency.

Political Risk

Political risk refers to whether a government is able to keep its word. If there are concerns over the stability of a government, investors might not invest there due to fear that changes could cause big problems for the financial system. Or, if there is political unrest, it may lead to a devaluation of the local currency.

So if a company was doing business in China and had plans to expand to the United States, they’d likely consider the risks involved in moving manufacturing operations overseas. They’d also weigh the potential benefits of the investment in light of these risks.


Price levels tend to rise when economic growth occurs. However, high inflation can hurt the value of a currency by causing prices to jump around more frequently.

For example, if prices were rising quickly every time you went shopping, you wouldn’t be happy with your purchases. But if inflation happens gradually, your dollars would still lose value over time.

Although it seems counterintuitive, low inflation can also help bolster the value of a currency. While it’s true that rising inflation usually depreciates the value of a currency, it does serve a purpose. Namely, it reduces demand for commodities like oil and gold. That means more resources remain available for the development of domestic industries. Eventually, this helps stimulate the economy, leading to stronger currencies overall.

Government Policies and Actions

A change in government policy toward foreign investments can also negatively impact exchange rates. An investor who puts his money into a foreign market based on a stable government may find himself stuck once that government changes course.

As an example, if a new president suddenly decided to take away all access to foreign markets, he or she could potentially put downward pressure on the value of a chosen currency.


Finally, speculators play a role in the value of currencies, especially during times of uncertainty. They hope that unexpected events will drive the value of a given currency down. Then, after prices drop, they sell off their shares fast, driving down the currency’s value further. These moves are usually short term as this doesn’t change the underlying value of the country. It can, however, add significant noise making it difficult to assess the real underlying value.

Speculative forces can drastically alter the value of various currencies. During times of economic instability, investors may rush to exit the market by selling off their holdings in hopes of locking in a profit. However, this activity can also contribute to the devaluation of a currency if the speculation turns sour. The more the currency devaluates, the more speculators will try to get out as fast as they can, thus driving the currency even lower!

The Biggest Factors in Determining Exchange Rates

Now that we understand the basic principles behind the value of money, let’s look at the factors that influence exchange rates the most. Let’s breaks them down into four categories:

Diversification and Stability are Important for Financial Security

One way to protect yourself from volatility in the global marketplace is through diversification. By investing in multiple types of assets rather than just relying on one type of asset, you reduce the overall risk of losing money.

Stability is also crucial. You don’t want to fall victim to panic selling in response to negative news. One way to do this is to use stop-loss orders to limit losses should the value of a currency begin to decline rapidly.

This also goes for whole countries. Let’s imagine a country getting 90% of it’s value from tourism. When a pandemic like covid hit an put a stop into all tourism and travel related activities, suddenly this country lose all of his value against other, less impacted ones. On the other hand, let’s imagine a monopoly where a single country is supplying gas to tons of others. Loosing or increasing the gas production can make or break all value into that country, just because they aren’t diversified enough to ensure stability.

Fluctuations of supply and Demand

Supply and demand is one of the main drivers of exchange rates. A strong economy typically leads to increased demand for a given currency, encouraging other nations to strengthen their own currencies as well.

On the flip side, an unstable economy causes demand to fluctuate. For example, when the world experiences a recession, it tends to bring down the value of the affected country’s currency.

Demand doesn’t necessarily mean total population, either. Instead, it refers to how much of a currency is used in the economy. If everyone decides now is a good time to travel abroad, demand for tourism destinations’ currencies rises dramatically.

Capital Flows and Liquidity

Liquidity refers to the ease with which a person or institution can convert one type of asset into another form. For example, if someone needs to transfer money between two different currencies, they’ll probably choose to move it via check instead of holding onto large amounts of cash.

Cash isn’t always the best option for converting currencies. With checks, transfers are faster and less prone to error. Plus, since they can be cashed immediately, they allow for bigger transactions. However, if there aren’t sufficient checks available, a bank account might be a better alternative. Banks offer easier ways to convert currencies without having to rely solely on the slow process of exchanging paper bills and coins.

Political Risk

Just like individual investors, corporations must worry about the effects of politics on their bottom line. Let’s say a multinational corporation headquartered in France wanted to open a branch office in a developing country where corruption and bribery are rampant. Even though the French government has strict anti-bribery laws, the company may decide that operating in these environments outweighs the risk.

Corporations often employ strategies known as “political capital management” to mitigate the effects of political risk. For example, they may set aside a portion of profits for contingency purposes. They also try to ensure that employees working in politically risky areas receive training in ethics and compliance.

Of course, governments also have a hand in influencing exchange rates. Some examples include monetary and fiscal policies enacted by central bankers. These decisions affect the supply of money, which affects the availability of credit and therefore demand for a currency.

Monetary policies also refer to the setting of short-term interest rates. Higher rates discourage saving, meaning less money gets invested in the economy. Lower rates encourage spending and investments.

Fiscal policies affect long-term interest rates. Governments enact these types of policies to achieve balanced budgets or fund programs. Since they require ongoing funding, they can significantly influence the value of a currency.

How much to save to prepare for an emergency

Emergency funds can really save the day when you’ll need it. It can be tough however to know how much to keep saved. According to a popular rule of thumb, you should aim for between three and six months’ worth of expenses. But in some circumstances, you may want to save up to 12 months’ of living expenses. Here is how to determine how much you need.

How much money I need for an emergency ?

To determine that, we need to take into account the likelihood of an emergency. For example, what are the chances of your car break down next month? If your roof starts leaking, will you have to pay to fix it? Can you be fired of your job and stay jobless for quite some time?

The rule of thumb

A good rule of thumb to give yourself a solid financial cushion is to have at least three months essential outgoings available in an instant access savings account. For example, if you lose your job, it’ll give you three months breathing space.

So, if you spend 1,000EUR a month on mortgage or rent, food, heating bills and other things you can’t live without, you might aim for 3,000EUR in emergency savings.

But this rule must be changed and adapted to your personal life. Here are some examples:

Your situation is stable: 3 months+

Saving three to four months’ worth of expenses might be enough if:

  • You’re healthy
  • You don’t have much debt
  • You live in a low cost-of-living area
  • You rent and your car (if you have one) is reliable
  • Your job is “safe” and pay regularly
  • You could easily find a job if you lose your current one
  • You don’t have kids or dependents (including furry ones) relying on your income
  • Your job is very stable
  • You have a partner or other family you can rely on for financial assistance

Your situation is stable, but can change rapidly: 6 months+

  • You live in a high cost-of-living area and can’t move
  • It’d be hard for you to find a job if you lose your current one
  • You own your own home (especially if you have an older home)
  • Your rent take a good chunk of your income
  • Your job isn’t very stable or irregularly paying (you’re a seasonal worker, gig worker, or an artist)
  • You have children, a stay-at-home spouse, pets, and/or other dependents you have to support
  • You have a medical condition, or do high-risk activities
  • You lack a financial support network

Your situation is instable: more than a year

  • You have a high income, and high expenses you can’t cut fast enough
  • You have a niche position or specialized job that might require relocation or take extra time to replace
  • You are the sole provider to multiple dependents
  • You are retired or are nearing retirement
  • Your job is on the line
  • You don’t have any insurance

Of courses these are not absolute figures, and you’ll have to adapt to your very own situation and lifestyle, but I hope now you get the idea.

These figures may seems high, but don’t worry, there is a way to build up your emergency fund almost effortlessly. Keep reading and build your emergency fund now, before that decision hit you back at the worst time possible.

How to build up your fund

Now that you know how much you need, let’s soon how you can put it aside. While it’s a good idea to set up your emergency fund as soon as possible, it’s best to keep to what you can afford and try to save regularly. If you try to save that much of money at once, you’ll probably fail and bail out of that idea.

What you need to do instead, is to develop an habit of saving regularly, and saving BEFORE doing any spending. Saving smaller, regular amounts is often more effective than saving larger amounts now and again. This is because you get into the savings habit, and you’re not overcommitting too much money. It also lets you budget your spending from week to week or month to month more effectively.

To stay motivated in the long run, remember that every bit you save can make a huge difference. You can also try visualising your end goal. Whether you’re preparing yourself against a car breakdown or replacing an expensive item like the cooker or washing machine, it will help you keep focused and on track as well. Keeping track with a chart up on the wall might help !

Remember, the sooner you start, the easier it’ll be ! As I like to say, the best day to start was 10 years ago, but the second-best day to start is just today.

How to cope with losing money while trading

Trading is a probability game. It’s different from gambling because the actual probability shifts with outside conditions, but also with your own knowledge of the market you are trading in. However, just like with gambling, there will always be times when you will lose money, no matter how much you study and plan for the worst. In fact, trading can even make you lose a lot of money quickly. This sense of loosing can make you quit trading, pull back your investment, eat your loss and never try your luck at it together.

If you came here, the harm is probably already done and your trading account i already well in the red. However, here are some things you should ABSOLUTELY do before taking any further action.

Disclaimer: Please keep in mind that this website is published for entertainment purposes, and does not constitute or be used as financial advice. As all information you can read on the internet, it’s up to you to do your own due diligence regarding tools, actual rules and techniques and decide what you can use and how you can use it.

Take some time to relax before taking action

It’s easy to get overwhelm when getting lot and lots of big red numbers on your trading screen. However, keep in mind that all these losses aren’t real losses until you sell the underlying asset. If you bought a stock of any given company, even if that stock loose 90% of its value overnight, keep in mind that you still own part of the company, and that company will continue to work for you by producing value for its customer !

So with that in mind, your best course of action is probably to just do nothing. If you do not to sell anything at all, you’ll still be invested in a company that will produce value and will have a chance to bounce back in the future.

Take for example the 2020 Covid-19 market crash:

If you bought almost any stock during the whole 2019 year, you’ll have had all your profit wiped during the first 15 days of march 2020. This is a complete market crash. You’ll even had lost quite a bit of money of your initial investment! If you panic sold at the worst time, you’ll have lost all of that money, forever. Poof just like that It’ll be gone. That why taking any action in panic is the worst thing you can do right now!

To understand why, let’s fast-forward 12 months:

Guess what! The market recovered, and even almost doubled since covid 2020 crash. That is, if you just done nothing, held the stock through the whole storm instead of panic selling, you’d have made all your loss back, but also doubled your investment on top of that ! Quite a nice gift for some patience right?

That’s why panic selling is the worth thing you can do especially in case of a market wide crash ! If you trusted any company to generate value with your money in the past, you can probably trust it to continue generating value in the future.

What was your plan? Stick to it!

Before trading any stock, you have to do your own research. You have to build confidence in that company values, assets, and direction. If you had confidence before that the company will generate profits in the future, then does the current crash change that vision? Does the current fear have changed something so drastically that the company will be unable to survive and produce value in the future? Most of the time, fundamentals don’t change as drastically as the stock market make you think it does.

With that mindset, you can be more cold headed and see the real value behind the market value ! With that in mind and as long as you trust a company long term, then if a stock goes up, then great, your conviction was right, but if the stock dips, then great too, as you can buy more at a cheaper price. As long as your confidence was well-placed and realize itself, you can’t lose money long term in the stock market with that way of thinking !

Best trading broker for France

So, you are new or quite used to investing, and just started your new life in France, let’s dig up all brokers available in France for continuing your trading journey. Let’s also talk about french fiscal oddities and how you can save money by using the right french fiscal rules at the right time.

Disclaimer: As a french, I personnaly used most of the tools I’ll describe in this article. However it’s also possible I haven’t had time to test the extensively, or havn’t had the possibility to try all of them altogether. It’s also possible these brokers have done an update or changed their rules and this article will not reflect that. As I’m always open for remarks and correction and I’ll try to keep this information as accurate as possible, however please keep in mind that this website is published for entertainment purposes, and does not constitute or be used as finantial advice. As all information you can read on the internet, it’s up to you to do your own due diligence regarding tools, actual rules and techniques and decide what you can use and how you can use it.

Also please note that I don’t provide a link to the brokers. I don’t get any comission if you subscribe to any of these so I don’t have any incentive to make you to do anything. This article are only my opinion and should only be taken as such.

What make a good broker?

This is usually the first step when starting an investing journey, and it’s also at the same time both the most important and the least prepared for. That’s why lot of new wannabe investors get lost in all the options given to them, and just give up their goal altogether.

Let’s start by defining what make a great broker for stock trading and see if it fits for you trading strategy. Let’s also check out which fiscal advantages and penalities your broker can offer you.

As you will see later on, each broker can fit into some trading styles and strategies but wont fit for other. I’ll let you check out my article on how to choose your trading strategy or at least know which one exist and which ones arn’t fit for you.

So to my man point: What make a good broker? Well, for me it’s a broker that’ll:

  • Execute my trades accurately and in a timely manner
  • Hold my funds
  • Give me accurate numbers on the orders I am going to pass
  • Don’t have exaggerated fees and limitations
  • Provide fiscal advantages over my situation

Fiscal advantages

As a French citizen you probably have to pay taxes. As of 2022, taxes are about 30% of your trading income. That can get to a pretty number at the end of the year so every rebate you can have is always good to use.

France is a country member of the European Union (EU), and in europe there exist a taxe incentive to invest in european values. In france this advantage take the form of a special trading account called Plan d’Epargne en Actions (PEA), litterally share saving plans in account. The idea of that whole account is that you pay taxes only when you withdraw (instead of on individual trades) and you get a substantial (around 15%) rebate if you wait 5 years for the first withdraw.

These type of accoun are incredibly popular accross french investors as if you don’t plan to use money for other things for a 5 year period, then you get a pretty nice taxe deduction along with a simple unique number to declare. However, this type of account have limitations: you can credit that account only up to 150 000€, trade only EU values and stocks (almost every stock and ETF that have an official valuation in euros) and if you withdraw before 5 years you have to close all the transactions, close the whole account and pay income taxes on the full amount.

PDT rule in France

Most starting traders in the US face problems with the PDT rule. This rule prevent you from doing more that 5 day-trades in a 4 days window if your account is below 25k USD. I’ll not go into a rant about how this rule doesn’t protect in any way retail traders and why it’s just an useless rule that add just more hoops to jump through as an aspiring trader.

So here is a good news for you. The whole European Union doesn’t have such a rule. So you can day trade or pattern trade as long as you want and with as many money as you want in your account !

PEA brokers

As sayd earlier, a PEA is a fiscal advantageous account type that provide taxes deductions when held more than 5 years and have the benefit of beign automatically transmitted to your fiscal report. As a very regulated account, most EU brokers doesn’t offer this type of account. However, traditionnal banks offer them. Also, please note that PEA broker will keep your cash in euros, and provide only values with a quotation in euros.

I’ll just present two PEA providers that I have personnaly tested:

Bourse-Direct Review

Order prices are inexpensive at Bourse Direct. Both for European stock exchanges such as Euronext Paris, Brussels or Amsterdam as well as for orders abroad. The only disadvantage of ourse Direct on this side is the custody fee of 0.036% per annum while none of their competitors charge these fees. There is also a fee for withdrawing funds, and the interface doesn’t really differenciate stocks available for use inside a PEA and thoses which arn’t available.

I’ve already had problem with transfers taking a long long time to clear with them. Usually a simple message to the support make the problem go away instantly. This is a good point as their support staff is very responsive and have a quick reaction. However it make it seem like the whole process is very “handmade” and thus, error prone.

Fortuneo Review

In addition to providing stock brokerage services, Fortuneo has the advantage of being a bank. If you really don’t want to separate the two, or if you think withdrawals are important and need to be done quickly, Fortuneo may be a good choice even though overall they are more expensive. Fortuneo offers an offer with 0 brokerage fees but a pity only for securities accounts and with an outstanding amount of € 50,000. No withdrawal fees like at Bourse Direct which charges € 6 per withdrawal. Again, this is to be decided according to the use that you will have of it.

The interface of Fortuneo seems a little nicer than that of Bourse Direct and I have never had any feedback about transfers arriving late or to the wrong account. Also their phone support both for the bank part and the trading part is both quick and understanding, and has already provided me with very valuable information.

The only drawback is that the account creation is quite ong if you arn’t already a client. In fact it can take up to 3 weeks to clear. In my case as I was already one of their client, the whole process went through in one week, including me providing some missing documents.

Standard Account brokers

Standard account brokers are unregulated internationnal ones. Usually these account arn’t eligible for any taxes rebate as they operate unregulated and offer all the possibilities of the worldwide market. Your income on these brokers will be subject to the will 30% taxes fee on profits. Please also note that most of these brokers operate internationnaly and will keep your cash in USD. This will incurr a currency exchange fee each and every time you add or withdraw funds from your trading account !

Both fortuneo and Bourse-direct provide internationnal account, however their prices arn’t competitve with standard internationnal accounts.

Etoro Review

Etoro is an internationnal broker based in Cyprus. It operate following the rules of the CySEC, the cyprus equivalent of the US SEC which are a little different. This is, by far, one of the most begginner friendly broker I have ever seen. The interface is quite user friendly and most indicators are outright available directly in the web browser. Just make sure to have a somewhat beefy computer if you want to play with multiple charts and indicators just to make sure your web browser dont hang on you at the worst time. The mobile application on the other hand is quite slow and sluggish, and albeit it has received a much appreciated overhaul these last months, I still find it quit slow to swap between views and stocks graphs. Clearly this broker is perfect for slow strategies like swing trading but not for day trading as you’ll always find the quick 5 seconds delay too much for your nerves.

Find one that fit your trading style

Just like any worker who need the right tool for the job, your trading career need the right broker for your job. Please test some and don’t stay locked into the first. If you are a beginner it’s the only wait to grasp what you’ll want your broker to have and what you’ll find useless. Find one that support your trading style and that wont let you down when it matter the most. Also please consider don’t putting all your eggs into only one basket as a technical problem can always happen to even the best of them !

Stay on the edge and happy trading !

Money Actually Can Buy Happiness

There is an very old saying that tells us that money can’t buy happiness. But in fact, serious studies of the question all come to the conclusion that happiness is directly correlated with earned money up to some point.

More than 10 years ago, some researchers suggested that money can buy happiness. They settled on an approximate earning of $75,000 a year. A complicated and nuanced study by Nobel Prize winning economists explained that the more money earned, the more happiness was perceived. However, that effect tended to plateau around $75,000 a year. Anymore and sadness increased.

The research also made it clear that earning more didn’t add to a sense of well-being. And that well-being was some sort of precondition to this correlation between money and happiness. In other terms, one must find his way of life before earning more money to accomplish this way of life.

The obvious appeal of the idea is that money can buy happiness in the sense that it can provide for basic necessities and stability, but not much beyond that. This means that multi-billionaires like Elon Musk and Jeff Bezos are much richer, but not much happier than the rest of us.

The only problem with this idea is that it may be totally wrong, and that we’d all obviously be much happier if we had millions of dollars. A new study published in Proceedings of the National Academy of Sciences says that the correlation goes upward of the $75,000, although with diminishing returns for every dollar earned more.

The study, titled Experienced well-being rises with income, even above $75,000 per year, doesn’t mince words. There was no evidence of an income threshold at which experienced and evaluative well-being diverged. This suggests that higher incomes are associated with both feeling better day-to-day and being more satisfied with life overall.

There was no evidence of an income threshold at which experienced and evaluative well-being diverged. This suggest that higher incomes are associated with both feeling better day-to-day and being more satisfied with life overall.

Experienced well-being rises with income, even above $75,000 per year

This new study is from Matt Killingsworth, a senior fellow at Wharton School of Business at the University of Pennsylvania. This study is based on 1,725,994 samples pulled from 33,391 employed adults in the United States. The sampling process was done using the app Track Your Happiness. Basically, this app ping people randomly during their daily life, and ask questions about their happiness and current well-being. This ensures that data can be then aggregated to give a quite good idea of happiness levels for the whole months or even the whole year! The study then just correlated this data with income levels to establish a relation.

Money can’t buy happiness, but can make you earn it!

I have to stress that money isn’t everything. The pursuit of wealth itself isn’t a means to happiness, and will instead lead to an empty and boring life. Wealth is just a small variance. There are plenty of other things that are equally, if not more important for our own happiness. It’s possible to earn not that much and still be quite happy. What matters after all isn’t how much money you make, but how you use it and what are your drives in life! Money can’t give a meaning to your life, but you can just by yourself.