Mar 28, 2016
With financial markets falling and the options for stimulating growth diminishing, several analysts believe that another global recession is just around the corner. While some investors may shift their attention to leveraged products such as CFD (what is CFD trading explained), others will look to take advantage of foreign exchange (FX) instead.
Since the economic downturn of 2008, several central banks have attempted to boost inflation by driving down interest rates into negative territory, which has also helped lower the level of their respective currencies. As a result, investors are given ample opportunities to convert one currency to another and make lots of profit in the process.
But what has this got to do with summer holiday locations? Well, if you identify a destination with a currency that is weaker than your own country’s currency, you will benefit from a cheaper deal and lots more spending money.
How foreign exchange rates work
The way foreign exchange figures get quoted may seem a little confusing, but they are essentially the value of one country’s currency against another. A strong dollar for instance is actually shown by a lower figure, as it takes less to buy another country’s currency.
Although a range of factors affect exchange rates, which can include government debt and the relative strength of other currencies, the biggest influence tends to be inflation rates. If these are higher compared with other countries, exchange rates tend to be low. Interest rates also make a difference, but they are always relative to other countries.
Exchange rates can change dramatically within the course of the week, especially when political decisions that will affect the economy are made. After a date for Great Britain’s referendum to leave the EU was announced, the pound slumped to a seven-year low, a level associated with previous crises for the currency.
Using currency to choose your holiday destination
Even if you have a specific holiday destination in mind, it makes sense to check how strong the country’s currency is before booking. Otherwise, a relaxing retreat could turn into an expensive endeavour due to unfavourable exchange rates. What’s more, you might miss out on visiting a location where your money will go an extremely long way.
In 2016, travel money expert FairFX says that destinations such as Russia, Zambia, Norway, Sweden, Brazil, South Africa, and most Eurozone countries are much cheaper to visit in 2016 than last year due to current foreign exchange rates. But remember, it doesn’t take long for currencies to go up or down in value, so you might want to book sooner rather than later to avoid disappointment.
Places like Norway and Sweden tend to be notoriously expensive for most foreign tourists because of their high taxes and salaries. However, it is now well within the realms of possibility to enjoy a trip to Scandinavia without breaking the bank. Elsewhere, the upcoming Summer Olympic games in Rio de Janeiro means there might not be a better or cheaper time to visit the colourful and captivating Brazil.
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