FX and macroCurrency converter →
Definition
An exchange rate is the price of one currency expressed in another. A EUR/USD rate of 1.10 means 1 euro costs 1.10 US dollars.
How it works
Currency pairs are written as base/quote. The first currency is the base, and the rate shows how many units of the second, the quote currency, buy 1 unit of the base. To flip a pair, divide 1 by the rate: if EUR/USD is 1.10, then USD/EUR is 1 ÷ 1.10, or about 0.9091. A rising EUR/USD means the euro has strengthened against the dollar.
The rate shown on charts and data sites is usually the mid-market rate, halfway between the buying and selling prices in the wholesale market. Banks, card networks and money changers quote a buy rate and a sell rate around it, and the gap, plus any fixed fee, is their charge. Comparing the rate offered with the mid-market rate shows the real cost of a conversion.
Most major currencies float, meaning the rate is set by supply and demand and changes constantly. Some are pegged, kept at or near a fixed rate against another currency by a central bank. Floating rates respond to interest-rate differences, inflation, trade flows and shifts in risk sentiment. These forces interact, so no single one reliably predicts the next move.
Example (hypothetical numbers)
Suppose the mid-market EUR/USD rate is 1.1000 and a money changer sells euros at 1.1220 dollars each.
At the mid-market rate, $1,100 buys $1,100 ÷ 1.1000 = 1,000 euros.
At the money changer's rate, $1,100 buys $1,100 ÷ 1.1220 = about 980.39 euros.
The difference of about 19.61 euros, roughly 2% of the amount, is the cost built into the quoted rate.
Common mistakes
- Reading a currency pair the wrong way round and misreading what a rise means.
- Judging a quoted rate on its own instead of comparing it with the mid-market rate.
- Looking only at the advertised fee when most of the cost is built into the exchange rate.
Related calculators
This glossary is for education only and is not investment advice. Examples use hypothetical numbers.