If you're going on vacation and want to stick to your budget and save money, it's very important to keep an eye on the exchange rate. Let's figure out what "exchange rate" really means. In general, the value of most other currencies is based on the value of the US dollar and is either more or less than the US dollar. For instance, a Canadian dollar is worth about 85% of a US dollar. In the same way, the value of the British Pound is two US dollars. Due to changing market conditions, however, the British Pound could be worth two dollars one day and more than two dollars the next.
There are two kinds of currencies: those that are "free floating" and those that are "pegged." A pegged currency is one whose value is set by the government of the country in relation to another currency. In the 1980s, the US dollar and the Hong Kong dollar had the same value. On the other hand, the value of a currency that is "free-floating" is allowed to change in relation to all other currencies on the foreign exchange market. People often talk about the real exchange rate and the nominal exchange rate when they talk about currency. The real exchange rate is the price at which goods and services from one country can be traded for those from another. On the other hand, the nominal exchange rate is the price at which the currency of one country can be traded for the currency of another country.
In real life, currency exchange rates change from country to country, which makes travel and tourism easier and more appealing. So, if you're planning a trip to more than one country, you should keep an eye on the current exchange rates. You could save money by doing this. For example, France, Japan, the UK, and Germany all send a lot of tourists to New York City at different times of the year. This is only because the exchange rates sometimes make it cheaper for Europeans or Japanese to visit America than at other times. In the past few years, it looks like the exchange rate has helped all European countries.
Before the Euro, Austria's money was the Schilling, Germany's was the Deutsche Mark, Italy's was the Lira, Switzerland's was the Franc, and France's was the Franc. At the beginning of the 1980s, two and a half Schillings were worth one dollar, while five French Francs were worth one US dollar. On the other hand, the rate of the Deutsche Mark to the dollar changed from 1.7 Marks to 2.5 Marks. So, when the US dollar was worth 2.5 Marks, Americans would trade their dollars for German Marks to stay ahead.
Those who want to travel and save money at the same time should always keep an eye on whether the exchange rate is going up or down. Even if you are just planning to visit family across the border or fly to Mexico or Canada, it is very important to know and understand the nominal exchange value of another country. So, try to plan your trip for a time when the changing exchange rates will help you the most.
