How Foreign Exchange Affects Expats

by Marc Castro

An expatriate is a national of one country who, either by choice or circumstance currently resides in another country. Most often, this decision is born about by work requirements. In this particular situation, the individual gets paid in their country of origin?s currency or rates for the work performed in the country of residence. This is where foreign exchange markets impact the expatriate.

When the expat receives the salary or payment from the country of origin, there is a need to convert these amounts into the currency of the country of residence to be used for their living expenses. This conversion affects the value of the salary received by the expat as foreign currency markets determine the conversion rates for the foreign currency as against the local currency.

As it is a free market system, the foreign exchange market fluctuates daily depending upon many factors. These factors include the relative supply and demand of the foreign currency in the local market among others. Because of the fluctuating nature of the foreign exchange, the risks involved with transactions and values increase with each day. Depending upon the rates pegged, called the spot rate, the amount transmitted as a matter of value changes accordingly.

Many of these transactions are coursed through financial institutions such as banks or other money transfer entities. What is important to remember, to get the most value for the home country currency?s transfer value is the timing of the transfer. Many banks determine spot rates upon receipt of the home country currency in the country of origin. This value is then determined, together with deductions for transfer to come up with the exchange value in the country of residence currency. Thus in making money transfers, the spot rate of exchange for the currency must be examined before making the transaction, be it over the counter or online.

Another important factor in foreign exchange valuations would be the conduit that the foreign exchange is to be transferred. Many institutions put an add-on cost to the foreign currency transferred. This cost is valued depending on the amount being transferred. This is also rated on the spot exchange rate of the currency being transacted. For example, if the spot exchange rate between the US$ and the Philippine peso is US$1= Php42 and the value transferred is US$1000, the add-on would either be at the receiving amount at the country of origin or the receiving amount at the country of residence. This is at a percentage rate that is deducted from the money value received, thus lessening the net amount received by the expat in the country of residence.

Thus if you are planning to become an expat in another country or is now living as one, the foreign exchange rate is a key factor in determining and evaluating one?s standard of living. It is important for the individual expat to be always aware and informed of the exchange rate of their country of origin?s currency and the country of residence. Also another factor that needs to be fully apprised of is the add-on costs in the transfer of these funds from the country of origin to the country of residence. This amount, which some may think as negligible, when added together, would be of considerable value in the long run.

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How Foreign Exchange Affects Expats

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May 16, 2011
Nice post
by: Luke

Nice post Marc. Good insight on a subject that many expats should think about seriously. Thanks for your contribution.

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