Dollar Euro Exchange Rate Graph - How to Fix (or Lock Into) A Foreign Exchange Rate

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Dollar Euro Exchange Rate Graph

If you've ever had to exchange foreign currency you will know the frustration of not being able to accurately calculate how much of one currency you will need to give in order to obtain a set amount of another at some point in the future, due to fluctuations in the exchange rate. Dollar Euro Exchange Rate Graph

We certainly used to have this problem, but then discovered a way in which is possible to lock in at the present rate or even better, and at an exchange rate better than we would have ever obtained from our bank.

Choose your own currency exchange rates - using Limit & Stop orders

Let's say you want to sell US dollars to buy 2,000 Euros sometime within the next month.

While the present eur to usd buy rate of say USD/EUR 0.70 is acceptable to you, let's say that based on your reading of commentary about the Euro exchange rate against the US dollar, or your reading of the charts you believe that it's likely the US dollar may strengthen against the Euro in the coming week, and you decide you would be happy to transact at USD/EUR 0.73

So, right now you will need USD $ 2,857 to buy 2,000 Euro at USD/EUR 0.70

If the euro rate moves in your favour you can reduce it down to $2,739 to buy the same 2,000 Euros at USD/EUR 0.73.
This would save you $118 ! Every little helps, and it might as well be in your pocket.

Ideally you want to get a better euro rate, so all you need to do is go to your dealer's website (details later) and set a LIMIT order at your target rate of 0.73. Just in case your assessment is wrong you also set a STOP order at 0.69, which is the worst rate at which you are willing to transact.

So, you've decided the most you want to pay is USD $2,898 to buy the 2,000 Euros at the USD/EUR 0.69 worst case rate

You place your order, and now if your dealer's euro buy rate hits 0.73 between now and the expiry date you have set (e.g. for the rest of today or maybe 1 month into the future, depending on your requirements) your transaction will be executed at 0.73. Likewise, if during that time price fails to hit 0.73 but slides back to 0.69 your transaction will be done at 0.69.

Of course your decision from the outset might have been that if price never hits 0.73 you don't want to transact at all, in which case just set the limit order and don't bother with a stop order.

The currencies section of the website listed at the foot of this article shows you exactly how to do this transaction. Dollar Euro Exchange Rate Graph

Book a fixed currency exchange rate now for the future - using Forward Contracts

If however you need to be certain of the exact rate you will get in the future, you may prefer to use a forward contract.

Let's say that you are in New Zealand and have done business with someone in the US and agreed a price with them today in US dollars of let's say $20,000, which seemed acceptable to you based on today's currency exchange rate of NZD/USD 0.68

Your supplier's terms are one month, so you know that one month from now you will have to pay the agreed US dollar amount.

You obviously don't want to buy the US dollars now and have all your cash tied up waiting a whole month for the invoice to come in, but at the same time you are worried that between now and next month the US dollar might really strengthen against the New Zealand dollar.

Right now the USD $20,000 would cost you NZD $29,412 which is acceptable to you.

But if the US dollar strengthened and the rate changed to NZD/USD 0.61 by next month you would have to find NZD $32,787.

That might not be acceptable to you! In fact it might even wipe out your profit margin.

So, what if you could lock the currency exchange rates you saw today when you agreed the US dollar price ? Many dealers offer the facility of buying a Forward Contract. This enables you to see a rate today which you can book now for a transaction you want to conduct at a future date. Hence the foreign exchange risk is completely removed from your transaction and you can sleep easy at night.

Most dealers' websites are available 24 hours a day when the forex markets are open, ensuring that you can lock in your rate exactly when you want it.

We've found the above services invaluable and have saved us a lot of money.

Extra spending money for the holidays

Even if you're not transacting large sums, these tools can still save you money. For example we like to holiday in Europe each year and so need to buy some euro currency at some point during the year. As well as our every day bank accounts we've also opened an account with our bank denominated in Euros. (Any major bank will let you open a foreign currency account).

We know how much spending money we want to bring with us, so we just target a currency exchange rate we would be really happy with and place an order up to 6 months before we're going to go over there.

Sometimes the rate (limit order rate) is hit earlier than we expect and the Euros land in our account months before we go on holiday, earning us a little extra interest too, but if this doesn't happen then we just take the rate that's available a few days before we go on holiday. All in all not a bad way of earning a little extra spending money for the holidays! Dollar Euro Exchange Rate Graph

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This article was published on 2010/10/13