Currency Converter

Understanding Currency Exchange Rates

Currency exchange rates represent the price of one currency in terms of another. They fluctuate constantly during trading hours, driven by supply and demand in the foreign exchange (forex) market — the largest financial market in the world with a daily trading volume exceeding $7.5 trillion.

What Determines Exchange Rates?

Several factors influence how currencies are valued relative to one another:

• Interest rates: Higher interest rates tend to attract foreign capital, increasing demand for the currency and pushing its value up. Central bank decisions by the Federal Reserve, European Central Bank, or Bank of England directly impact rates.
• Inflation: Countries with lower inflation typically see their currency appreciate over time, as purchasing power is better preserved.
• Trade balances: A country that exports more than it imports creates demand for its currency as foreign buyers must purchase it to pay for goods.
• Political stability: Uncertainty, geopolitical tension, or unstable governance can cause capital flight, weakening a currency.
• Market speculation: Large institutional traders and hedge funds move billions daily based on anticipated economic developments.

Bid, Ask, and the Spread

When you exchange currency, you encounter two rates: the bid (the price a dealer will buy from you) and the ask (the price a dealer will sell to you). The difference between these two rates is the spread, which represents the dealer's profit margin. Interbank rates (the “mid-market rate”) fall between bid and ask and are the fairest benchmark, but they are rarely available to retail customers.

Tips for Getting Better Exchange Rates

• Avoid airport kiosks: Airport currency exchanges typically offer the worst rates, with spreads of 5–10% or more.
• Use a multi-currency card or fintech app: Services like Wise, Revolut, or similar fintech providers often offer rates close to the mid-market rate with minimal fees.
• Pay in local currency: When traveling, always choose to pay in the local currency rather than your home currency. Accepting “dynamic currency conversion” at a shop or ATM usually results in a poor rate set by the merchant.
• Compare providers: Banks, credit unions, and online services all offer different rates and fee structures. Comparing before a large transaction can save significant amounts.
• Consider timing: If you have flexibility, monitor rates over days or weeks. Currency markets can shift 1–2% or more in either direction in a single week.

Major vs. Exotic Currencies

The most traded currencies globally — USD, EUR, JPY, GBP, AUD, CAD, CHF, and CNY — are known as “major” currencies. They have deep liquidity and tight spreads. Emerging market or “exotic” currencies (e.g., TRY, NGN, EGP) tend to have wider spreads, less liquidity, and greater volatility, making conversions more expensive and rate predictions less reliable.