Question

Currency exchange rates are constantly fluctuating. How might this affect the currency exchange plans of a traveler who plans to spend several thousand dollars as they travel over a period of two months?

Answer 1

Currency exchange rates fluctuations pose budget uncertainty risk for future travellers. A solution to this is Forward Exchange rate markets.

Explanation:

Currency Exchange rate is the rate at which two currencies can be exchanged for each other, it is the price of one currency in terms of other.

The currency exchange rates are dynamic, fluctuating based on demand & supply of currencies in foreign exchange markets. This uncertainty in currency rates is not good for foreign travellers, for making later plans. It might disturb their entire allotted budget.

So, they should purchase foreign exchange on Forward Exchange Rate. This rate depicts agreement for exchange of currencies, at pre-determined exchange rate, at a specific date. Buying foreign exchange from Forward markets will protect travellers from Forex volatilities.