Selling Rate: Definition, How to Calculate and Rules for Foreign Currency Transactions in Indonesia

Selling Rate: Definition, How to Calculate and Rules for Foreign Currency Transactions in Indonesia

For those who like or often travel abroad, whether for holidays or for work, they must be familiar with the term exchange rate, both the selling rate and the buying rate. Knowing the concept of the exchange rate is not only useful when we often commute abroad, but also for the needs of saving, investing and doing business.

But what is meant by exchange rate?

Understanding the exchange rate itself in general is the value or price of a country’s currency which is measured using another country’s currency. The exchange rate is closely related to the exchange of foreign money in the bank or at the money changer. To make it easier to understand, the selling rate and buying rate are always interpreted from the point of view of the bank or money changer. Not from our point of view as exchangers.

According to economists Fabozzi and Franco, the notion of an exchange rate is the amount of one currency that can be exchanged per unit of another currency, or the price of one currency in terms of another. Meanwhile, according to Ekananda, the meaning of the exchange rate is the price of a country’s currency relative to the currencies of other countries. Well, for this time we will discuss in full what the selling rate is and its complete definition and how to calculate it.

Definition of Selling Rate
selling rate

The exchange rate is closely related to the exchange of foreign money in the bank or at the money changer. To make it easier to understand, the selling rate and buying rate are always interpreted from the point of view of the bank or money changer. Not from our point of view as exchangers.

The selling rate (ask price) is the selling price of a currency set or offered by the bank, when it wants to sell the currency to the buyer. There are 5 (five) things that affect the exchange rate, be it the selling, buying and middle rates, namely:

Inflation and deflation rates
government policy
Interest rate difference
Balance of payments activities
expectations

With the following explanation:

Types of Factors

Affecting Exchange Rates

Information

Inflation rate

Inflation means an increase in the price of goods or services or you can also interpret it as a decrease in the local currency. The main basis that influences this is international trade. As we already know, the main basis contained in the foreign exchange market is international trade between goods or services. This causes changes in local currency prices and foreign currency prices. This condition is capable of causing movements in foreign exchange rates.

government policy

The policies adopted by the government will also affect the balance of currency exchange rates. Policies are supervising, namely monitoring foreign exchange rates. Various examples of these policies are the government’s efforts to avoid problems in foreign exchange rates and international trade, as well as intervening in the money market.

Interest rate difference

The interest rate is the price of money used for a certain period of time. Changes in high interest rates in a country will also affect international capital flows. If a country’s interest rate changes, it will affect international capital flows. If the interest rate of a country increases, the incoming foreign capital will also increase so that the local currency exchange rate increases.

Balance of payments activities

If the balance of payments is active, then it can increase the demand for foreign debtors so that it makes the value of the local currency increase. On the other hand, if the balance of payments is passive, of course, domestic debtors will sell all their assets in foreign currencies which will result in a decrease in the value of the local currency. The level of openness of the economy will also determine the size and impact of the balance of payments on currency exchange rates. Such as, the effects of changes in tariffs, trade quotas, export subsidies, restrictions on imports of goods, etc.

Expectations

Expectations of currency exchange rates in the future can also be a factor that affects exchange rates. This can happen because the foreign exchange market will act very quickly when it hears information that has an impact in the future. For example, news about rising inflation in the United States could cause foreign exchange traders to sell their dollars, because the value of the dollar could decline in the future. Thus, it will automatically depress the dollar exchange rate in the foreign exchange market

When is the selling rate used?

The selling rate is the exchange rate used if the bank/money changer wants to sell foreign currency (foreign exchange/forex) to us or if you want to exchange rupiah for foreign money. Or it can be interpreted that the selling rate is the selling price of currency/forex by the bank/money changer.

For example, if you exchange the Rupiah that you have with US Dollars ($), then you will use the selling rate.

How to Calculate Selling Rate

After knowing what the exchange rate is and the selling rate in general. Next is how to calculate the selling rate. By knowing how to calculate the selling rate, you can be more precise in determining what foreign exchange savings (forex) are good, investments or preparing costs for a vacation abroad.

The following is an illustration of how to calculate the selling rate:

You are planning a vacation to America. In order to be able to shop with cash in the United States, it means that you have to exchange some of your money in the United States currency, namely USD or $ as the currency applies there. To be able to exchange your money, you finally go to the nearest money changer to exchange a certain amount of rupiah that will be used for USD ($).

At the time of exchanging money, the selling rate of USD is $1 = IDR 15,043.84. Meanwhile, the USD buying rate is $1 = IDR 14,894.16. Well, because you want to exchange Rupiah to USD (United States Dollar) it means that you use the selling rate as a reference for calculating it.

So if you want to exchange IDR 35 million to USD the way to calculate it is:

= 35,000,000 / 15,043.84 (dollar selling rate)

= 2.326

So, IDR 35 million if you convert it to United States Dollars with a reference to the buying rate, you get $2,326.

Regulation of Transactions Using Foreign Money in Indonesia
In general, transactions in the territory of Indonesia are required to use rupiah. This has been regulated in Bank Indonesia Regulation (PBI) No. 17/3/PBI/2015 in particular Chapter II Article 2 concerning the Obligation to Use Rupiah. Parties who trade in goods or services in the country may not refuse transactions in rupiah currency.

However, there are some exceptions to this rule and some of the following can still use foreign currencies:

Payment of government foreign debt.
Government goods and capital expenditures.
Buying and selling debt securities or bonds.
Tax and non-tax revenue.
Receipt of grants from abroad.
Export and import related transactions.
Cross-border online transactions.
Consumption of Indonesian citizens abroad.
Deposits in the form of foreign currency in the bank.
Financing transactions from international creditors.
Foreign exchange transfers abroad.
Foreign currency credit for export activities.
The interbank money market (PUAB) in the form of foreign exchange.
Foreign currency bonds.
Visa on arrival.
Government strategic infrastructure projects with certain conditions.
The issuance of these regulations cannot be separated from the increase in transactions using foreign exchange, especially the dollar. Obviously this is not at all profitable for Indonesia.

Because it makes the rupiah weaker against the dollar. This situation, if left unchecked, will spread to the Indonesian economy. And it does not rule out the possibility of a crisis like 1998 in which the rupiah actually dropped in value against the dollar.

Understand Well
Because the exchange rate changes every week with changes in the rupiah exchange rate against foreign currencies, know the latest buying and selling exchange rates when you want to travel abroad whether for vacation, work or business.

Because usually because of the lack of information obtained about buying and selling rates, not a few are mistaken in understanding the two exchange rates. By understanding the explanation above, hopefully the error in distinguishing the selling rate from the buying rate can be avoided.

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