Because of the increased mobility and opportunities in many other countries, individuals often choose to become an expat for work purposes. The money then earned would be sent home but not in its actual value but as an exchanged value. This is where the conundrum of the exchange rate for an overseas expat.
The exchange rate between the received amount at the country of work and its equivalent value is influenced by many factors. The following are some of the factors the relative values of exchanged money to your home country.
Inflation. As observed, a country with a lower inflation rate would have a higher currency value compared to the currency exchanged. Thus, when your home country’s inflation is higher compared to your work country’s inflation, then the value of the work country’s currency would be higher than the home country’s currency. Inflation is the rate of the devaluation of the currency and the amount a particular value is able to purchase. In foreign exchange terms, when the equivalent value of the foreign currency is given, the inflation would be the lessening of the value received as against what it can purchase.
Interest Rates. Interest rates, by definition, is the amount charged for obtaining loans within a particular country’s banking or financial system. The higher the interest rate, the higher the cost is for investment in the country, making the economy hard pressed to produce income and investments. Investment is one of the key indicators to see how much foreign exchange is in the country. With more foreign exchange, the lower the value exchanged for your money sent from your country of work.
Stability. This is all about how stable the country is regarding its politics and economics. When the country is stable, be it the home country or the work country, the currency valuation would be stable. This would invite many others to invest in the country. If one of the country is unstable, expect the valuation of their currency to fall compared to others, as the foreign currency becomes scarcer in the economy, increasing the demand thus increasing price.
Foreign Influence. Since the world’s economies are so interconnected nowadays, many foreign influences come into play regarding foreign exchange. Entities such as the World Bank, the International Monetary Fund and other lending agencies or even financial advisers such as Moody’s International and the like have great influence on the foreign currency exchange rates in a free market system. With their advice or opinion, the values in the market for particular currencies are affected.
