How do remittances affect the exchange rate of a country?

You have come across much information on the internet about remittances, the best companies offering the best exchange rates and the link between the two. But, you have hardly come across pieces that walk you through the connection between these in a manner that is easy to understand. Exchange rates are the biggest concern when expatriates make an online money transfer to their native country. For instance, nearly 10 million Pakistanis live and work in foreign countries to work and earn. When these Pakistani expats send money to Pakistan for their families and friends, they essentially look for the best exchange rates they can get for their cross-border transactions.

Here, you will find more profound insight into international exchange rates to understand the topic quickly and effectively.

Introduction to the Currency System

You may call it currency or cash; it is also known as money. Money is a commodity that is generally accepted by popular consent as a medium of economic exchange.

Historical Perspective for its Need  

The origins of money used in the context mentioned above can be traced as far back as thousands of years. It has been in human use in one form or the other. Even in the barter trade system, money was a popular medium of economic exchange like it is today. The only difference is in the forms and shapes it took over several centuries in different eras.

Money always existed in human societies. Not everything a man needs can be created by the one needing it. What you need may be possessed by others, and what others need you may have. Therefore, the need to establish a medium of exchange for the required goods arose, which all agreed upon. This is how money was born, and we know it now as currency.

The Economic Relations between Different Countries

In this increasingly globalised world, there is not a single country that can survive in isolation. All the countries have to depend on one another. And if a nation depends on the other, it does not mean they are poor and cannot survive without dependence. The developing and rich countries both depend on each other given different circumstances where some countries may rely on others heavily while others may have a limited dependence.

Such dependence is based on economic strength. For example, a less developed country will depend on a more developed country for purchasing technology from it. A purchase is based on the exchange of goods in return for money. Another country will send its highly skilled professionals to another country in return for their jobs.

Yet another country may depend on the other to purchase heavy machinery it cannot manufacture itself.

You can apply it in any context and any type of relationship between countries worldwide.

Now, let’s see the exchange rates and understand those with examples.

Understanding Exchange Rates made Easy.  

It is the value by which one currency is traded for the other. Or, it is the rate at which you can purchase another currency.

For example, the exchange rate of one GBP in the Pakistani rupee is around 236.02 rupees. In other words, you will have to spend about 236.02 PKR to purchase one GBP. 

If you are about to send money to Pakistan from UK, let’s take an example. You desire to send 50,000 PKR to your family in Pakistan. Considering the current GBP to PKR exchange rate, you will need to transfer 211.85 GBP if you want your beneficiaries to get 50,000 PKR. It’s easy to calculate the desired amount in PKR converting from GBP. Take the following example:

1 PKR = 236.02 GBP

50,000 PKR = 50,000 / 236.02 => 211.85 GBP 

You can apply the same technique to your respective currencies to determine their exchange rates.

The Links between Remittances and Exchange Rates

There is a direct and vital link between remittances and exchange rates. When expatriates send in a particular currency in huge volumes, the exchange rates will drop because of the increased availability of the said currency in a country.

But, if the same currency is in short supply, its exchange rates will automatically increase due to an increase in demand for it exceeding its supply. Therefore, expatriates always try hard to find the best international money transfer services for their movement of funds across borders.

A company that offers the best exchange rates to its customers, such as ACE Money Transfer, increases the flow of currency, ultimately benefiting the recipient both on an individual and national level. 

In Pakistan, current remittance stats show an all-time record high figure of $8035 Million merely in the third quarter of the year 2021. Many Pakistani expatriates abroad who continually transfer money to Pakistan from the UK, Europe, Australia, Canada, Africa, Asia, and various other regions have collectively made it possible to achieve a high level of cross-border remittance transfers.

The increase or decrease in the flow of remittances also affects the exchange rates. An increased flow of remittances will result in steady exchange rates, and a decline will push the exchange rates up.

The best method for an International Money Transfer

To determine the best way for remittance transfers, you must look for the following few features in the services of a company.

Security of funds is essential.

Given the increasing online scams, you must consider how secure your funds will be if you send those via an online money transfer company.

A low fee is key to a safe transaction.

A credible company such as ACE Money Transfer will always charge a nominal fee for the best services.

Why avoid paying the hidden fee?

Many companies with dubious credentials will charge a hidden fee without bringing it to your notice as the transaction proceeds. In such a scenario, you are most likely to pay more to the company than the intended recipient.

Best exchange rates are essential for a better transaction.

A credible company will always offer the best exchange rates. These companies link their exchange rates with the international markets where they keep fluctuating.

You, as an expatriate, have a lot on your mind when it comes to sending your hard-earned money to your family. Therefore, always look for a company with an international reputation by offering all of the above features and some others such as broader access, convenience, dual options of apps and websites, etc.

ACE Money Transfer leads the list of remittance service providers that make an international money transfer joyful and straightforward.