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About Exchange Rate

Exchange Rate

There are generally two methods of determining exchange rates. The first is called direct exchange rate determination. It determines the amount of domestic currency compared to one foreign currency unit. or in other words exchange rate is the price of one unit of foreign currency in domestic currency. The exchange rate that makes the demand equal the supply of foreign currency. We call it the equilibrium exchange rate. This will make the balance of payments balance as well.

To understand the meaning of the word exchange rate Economists gave the following concepts about the meaning of exchange rates.

1. Currency exchange rate is the price of foreign currency in the form of domestic currency The exchange rate between these two currencies is shown in the daily newspaper. For example, US $1 equals 34 baht, 1 pound equals 67 baht, 1 Singapore dollar equals 22 baht, etc.

2. Real exchange rate is the currency exchange rate adjusted The real exchange rate shows the competitive position against foreign countries. Usually the real exchange rate is equal to the currency exchange rate. Multiply by the ratio of the foreign price level. compared to the domestic price level

3. Efficient exchange rate is the weighted average of the exchange rate of the domestic currency with the currency of the major trading partners This index shows the effect of exchange rate changes on imports and exports of that country with its major trading partners. exchange rate

4. The real effective exchange rate is the effective currency exchange rate. Multiply by the price index of the major trading partner countries. and divided by the domestic price index If the effective exchange rate is higher The domestic currency appreciates against the currency group of trading partners.

Type of exchange rate

1. The purchase rate means the exchange rate used by commercial banks to buy one unit of foreign currency.
2. Selling rate is the exchange rate used by commercial banks to sell foreign currency to customers. Usually the rate is higher than the buy rate.
3. Instant exchange rate is the current exchange rate for buying or selling foreign currency and the foreign currency was delivered immediately The money is usually delivered within a few days. For example, the current purchase rate of $1 is 34 baht.
4. Forward exchange rate is the exchange rate at which it is agreed to buy or sell foreign currency at present and contracts to deliver foreign currency in the future as agreed Usually the agreed period is no more than 1 year.
5. Official exchange rate refers to the exchange rate fixed by the Central Bank for foreign currency trading. between commercial banks and central banks only This is usually fixed for a period of time until a new change is announced.
6. Market exchange rate or free exchange rate means the exchange rate determined by demand. and the supply of foreign currency in the free market The market exchange rate has a fixed value. which changes up and down according to the demand and supply of foreign currency at that time