How Currency Exchange Rates Work
Currency exchange is the process of converting one currency into another at the prevailing exchange rate. Exchange rates fluctuate continuously based on supply and demand, interest rate differentials, economic data, and geopolitical events. Understanding how exchange calculations work helps you get better rates and avoid expensive conversion fees.
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Formula
Currency Exchange Calculator
Convert an amount from one currency to another using a given exchange rate.
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Worked Example
Given:
Related Calculators
FAQs
What is the difference between the mid-market rate and the rate I get?
The mid-market rate (also called the interbank rate) is the midpoint between the buy and sell price that banks use when trading among themselves. Retail customers always get a worse rate — banks and exchange services add a spread of 1–5% as profit. Services like Wise (TransferWise) offer rates much closer to the mid-market rate.
What is a pip in forex trading?
A pip (percentage in point) is the smallest standard price move in a currency pair — typically the fourth decimal place, or 0.0001. For example, if EUR/USD moves from 1.0850 to 1.0851, it moved one pip. Japanese yen pairs are quoted to two decimal places, where one pip is 0.01.
Why do exchange rates change constantly?
Exchange rates are set by the foreign exchange (forex) market, which trades over $7 trillion per day and operates 24 hours a day. Rates change with every transaction as supply and demand shift in response to economic data releases, central bank decisions, political events, and market sentiment.