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Travel

Money serves three important functions: it is (1) a store of wealth, (2) a medium of exchange and (3) a standard of value. However, the last of these functions poses a problem for international travelers. After all, if different countries have different standards, different currencies, how is your money translated abroad?

Exchange rates offer a means of translating one currency into another. However, different currencies rarely convert at a one to one ratio. More commonly, there is a considerable gap between their values. One of the main reasons for this divergence is because currency prices reflect the overall state of a country's economy. Therefore, varied economic performance results in varied prices. While travelers are not expected to be experts of the economic performance of their destinations, they should take exchange rates into consideration before making such a decision because of the impact on purchasing power. Otherwise, their vacation may be dampened by the realization of how little luxury they can actually afford.

Purchasing Power

Converting one currency into another has important consequences for the other two functions that money serves. Exchanging currencies impacts cash in hand, and has a strong influence on a traveler's purchasing power abroad. They determine how much or how little a US Dollar (or Pound, Euro, etc.) can buy in another country. They establish a currency's value relative to that of the other country.

For example, an American tourist planning a vacation to France might reconsider when he realizes that the exchange rate of the EUR has reached as high as 1.4 (that is, one Euro costs $1.40 US Dollars). This means that for the American tourist, everything in France will cost 40% more! Such disparities work towards fluctuating the movement of the tourism industry. In recent years, the Euro has gained strongly against the US Dollar, meaning that it has gotten more expensive for Americans to travel to Europe. As a result, there has been a significant increase in the number of European tourists visiting the United States because the trip suddenly became considerably more affordable.

Exchanging Currencies

So what are travelers to do? Primarily, it is important that travelers be aware of the divergence between currency prices. Taking exchange rates into consideration can help travelers more realistically budget their vacation.

Here are several other tips to help guarantee traveler's can get the most from their money:

  • Credit card transactions are not immediate. When they actually are carried out, you could end up with a less favorable exchange rate than you originally anticipated when making your purchase. However, credit cards and ATMs typically offer better rates for currency exchanges. But be sure to check what kind of fees your bank charges for withdrawing money abroad. Using traveler's checks is another recommended alternative.
  • While converting money at hotel or airport exchanges may be convenient, they can charge very high fees. Banks are probably the most convenient way to exchange currency without incurring a large amount of costs.
Exchanging money beforehand in preparation of your vacation can have large costs associated with doing so. It is best to convert your money only after you are abroad rather than before leaving.




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