How does the Forex works? This is the question i woke up thinking about after my mother received a few dollars from her brother who is currently located in the United States of America.
Forex is short for foreign exchange. It is useful in determining how much one currency is worth in comparison to another. There are two aspects involved; the buying price and the selling price. For simplicity and illustration purposes, allow me to use the US dollar($).
Currently, selling 1 USD will get you Kshs. 102.3995 and buying 1 USD will cost you Kshs. 104.23. My mother received $100 so lets see how much this is worth. When converting from the dollar to the shilling you are basically selling it to the bank hence we use the selling price(102.3995) therefore, for the $100 you will get Kshs. 10, 239.95.
If she wanted to exchange Kenya shillings to US dollars then she would be buying from the bank meaning that buying 1 dollar would cost her Kshs. 104.23. If she was exchanging Kshs. 10, 239.95 to US dollars then she would receive 98.25 USD.
These rates keep fluctuating now and then due to several factors among them differential in inflation and interest rates, public debt and terms of trade between two countries for example.
There are over 150 currencies in the world today and the US dollar is used as a universal currency. This makes it easier to trade between any two countries.
Forex is a broad area but when one is equipped with the right information, they are good to go!