Which exchange rate is better – Guaranteed or Indicative?

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Foreign exchange rate is the value of one currency for the purpose of conversion to another. If you compare INR and USD, the value of INR when compared to USD becomes the exchange rate. The exchange rate can be based on multiple factors such as market fluctuation. There are two types of exchange rates, locked-In exchange rate, also known as fixed exchange Rate and indicative exchange rate, also known as floating exchange rate.

What are Locked-In Rates?

In Locked-In exchange rate, the value of a particular country’s currency is fixed to the value of another single currency. This exchange rate is set by the government or the central bank to maintain the official currency value within limited bandwidth and to also keep the interest rates lower. This way the exchange rates are appropriate, and the government can adjust it whenever required.

Features of Locked-In Rates:

  • Stability in exchange rate
  • Lessens transaction charges
  • Remains same, as it is set by the government
  • Secured transactions

When you make an international money transaction with locked-in rates, the exchange rate is fixed when it is applied at the time of conversion of overseas currencies. It means that with this, the sender will know the exact amount of money to be received by the recipient. It is also a useful option if you have a fixed commitment overseas like loan, EMI, mortgage etc.

What are Indicative Rates?

Indicative exchange rates fluctuate according to the market forces of supply and demand. The change of market conditions also causes the exchange rates to fluctuate invariably. Neither the central bank nor the government interferes in determining the price of the currency.

Features of Indicative Rates:

  • Keeps fluctuating
  • The change in supply and demand adjusts automatically
  • Highly flexible
  • May lead to inflation, which has to be controlled by the government

As indicative rates are floating exchange rates, they are not locked at the time of a transaction. Since the rates fluctuates, the amount received by the recipient during the transaction may vary.

It is important to be aware of these two types of rates while making an international transaction. Apart from this, you can also consider various other factors when remitting online.

Which rate do I choose?

Remit2India offers both guaranteed and indicative rate when you send money to India. Sending money through guaranteed rate is always safe, but if you are willing to take a little risk and can gauge the market condition, you can choose indicative rate as you might get higher returns.

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