The Quick Answer
An exchange rate tells you how much one currency is worth in terms of another. To convert currency, multiply the amount by the exchange rate.
Formula: Converted Amount = Source Amount × Exchange Rate
For example, if the USD/EUR rate is 0.92, then 1,000 USD × 0.92 = 920 EUR.
The rate you see quoted online (the mid-market rate) is not the rate you'll get at a bank or exchange service. Banks add a markup called a spread, typically 1–4% for consumer transactions. So your 1,000 USD might actually convert to around 900–910 EUR in practice.
Use our currency converter to calculate conversions with any rate — mid-market, bank-quoted, or historical.
What Is an Exchange Rate?
An exchange rate is the price of one currency expressed in another. When you see "USD/EUR = 0.92," it means:
- 1 US Dollar can be exchanged for 0.92 Euros
- Or equivalently: the Euro costs about 1.087 US Dollars (the inverse)
Exchange rates are usually written as a currency pair. The first currency is the base (what you have), and the second is the quote (what you want). USD/EUR = 0.92 means 1 USD buys 0.92 EUR.
Why Rates Are Quoted Two Ways
You'll often see what looks like conflicting information:
- "EUR/USD = 1.087" — 1 Euro buys 1.087 US Dollars
- "USD/EUR = 0.92" — 1 US Dollar buys 0.92 Euros
These say the same thing from different perspectives. The relationship is: EUR/USD = 1 ÷ USD/EUR. So 1 ÷ 0.92 ≈ 1.087.
This is why getting the rate direction right matters when converting.
How to Convert Currency: Step by Step
Step 1: Identify the Rate Direction
Make sure you know what the rate means. "0.92" for USD to EUR means 1 USD = 0.92 EUR. The rate is expressed as target currency per 1 unit of source currency.
Step 2: Multiply
Multiply your source amount by the rate:
- 500 USD × 0.92 = 460 EUR
- 2,000 USD × 0.92 = 1,840 EUR
- 75 USD × 0.92 = 69 EUR
Step 3: To Convert Back, Use the Inverse
If you want to go the other direction (EUR to USD), divide 1 by the rate:
- Inverse rate: 1 ÷ 0.92 = 1.087
- 460 EUR × 1.087 = 500 USD (back to the original)
Worked Example Table
| Source Amount | Rate | Calculation | Result |
|---|---|---|---|
| 1,000 USD | 0.92 (USD→EUR) | 1,000 × 0.92 | 920 EUR |
| 500 EUR | 1.087 (EUR→USD) | 500 × 1.087 | 543.50 USD |
| 250 GBP | 1.26 (GBP→USD) | 250 × 1.26 | 315 USD |
| 100,000 JPY | 0.0067 (JPY→USD) | 100,000 × 0.0067 | 670 USD |
| 3,000 CAD | 0.74 (CAD→USD) | 3,000 × 0.74 | 2,220 USD |
Mid-Market Rate vs. The Rate You Actually Get
This is the single most important thing to understand about currency conversion.
The Mid-Market Rate
The mid-market rate (also called the interbank rate or spot rate) is the midpoint between the current buy price and sell price on the global foreign exchange market. It's the rate banks use when trading with each other in large volumes.
When you search "USD to EUR" in a search engine, you see the mid-market rate. This is the "true" exchange rate before anyone adds their markup.
The Bank or Service Rate
When you exchange money through a bank, airport kiosk, credit card, or online payment service, you don't get the mid-market rate. The provider adds a spread — the difference between what they buy currency for and what they sell it to you for.
Typical spreads by service type:
| Service | Typical Spread |
|---|---|
| Interbank (large banks trading with each other) | 0.01–0.05% |
| Online transfer services | 0.5–1.5% |
| Credit/debit card foreign transaction | 1–3% |
| Bank branch exchange | 2–4% |
| Airport/hotel exchange kiosk | 5–12% |
A 3% spread on 1,000 USD means you lose about $30 compared to the mid-market rate.
How to Calculate the Real Cost
If the mid-market rate is 0.92 EUR per USD and your bank offers 0.89 EUR per USD:
- Mid-market conversion: 1,000 × 0.92 = 920 EUR
- Your bank's conversion: 1,000 × 0.89 = 890 EUR
- Cost of the spread: 920 − 890 = 30 EUR (about 3.3%)
Always compare the rate you're offered against the current mid-market rate to see the true cost.
Cross Rates: Converting When There's No Direct Quote
A cross rate is an exchange rate between two currencies calculated through a third currency — usually the US Dollar.
When You Need Cross Rates
Direct quotes exist for major pairs (USD/EUR, USD/GBP, USD/JPY). But for less common pairs like Thai Baht to Swiss Franc (THB/CHF), a direct quote may not be readily available.
How to Calculate a Cross Rate
To find the THB/CHF rate using USD as the bridge:
- Look up THB/USD = 0.029 (1 THB = 0.029 USD)
- Look up USD/CHF = 0.88 (1 USD = 0.88 CHF)
- Multiply: 0.029 × 0.88 = 0.0255
- So 1 THB ≈ 0.0255 CHF
Example: Convert 50,000 THB to CHF: 50,000 × 0.0255 = 1,275 CHF
Why Exchange Rates Change
Exchange rates are driven by supply and demand on global currency markets. The main factors:
Interest Rates
Higher interest rates attract foreign investment, increasing demand for that currency. When a country's central bank raises rates, its currency often strengthens.
Inflation
Lower inflation generally strengthens a currency because purchasing power erodes more slowly. Countries with consistently low inflation tend to see their currencies appreciate over time.
Trade Balances
A country that exports more than it imports has higher demand for its currency (foreign buyers need it to pay for goods), which tends to push the exchange rate up.
Political Stability
Investors prefer stable environments. Political uncertainty, elections, or geopolitical events can cause rapid currency movements as investors move money to perceived "safer" currencies.
Market Speculation
Currency markets trade over $7 trillion per day. Short-term movements are often driven by traders' expectations about future events, not current fundamentals.
Common Mistakes
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Getting the rate direction backward. If the rate is 0.92 EUR per USD and you want EUR→USD, you need the inverse (1.087), not 0.92. Multiplying EUR by 0.92 gives the wrong answer.
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Assuming the mid-market rate is your rate. The rate on Google is not what your bank charges. Always check your provider's actual quoted rate or fee schedule.
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Ignoring fixed fees on top of the spread. Some services quote a fair exchange rate but charge a flat fee ($5–$15 per transaction). For small amounts, this fee can be more expensive than a larger spread with no fixed fee.
-
Converting through an unnecessary intermediate currency. If you can get a direct quote for your currency pair, use it. Converting USD→EUR→GBP costs two spreads instead of one.
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Using outdated rates. Exchange rates can move significantly in hours. If you looked up a rate yesterday and use it today, the actual rate may have shifted 0.5–2% or more, especially during volatile periods.
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Rounding too aggressively. For large amounts, rounding to two decimal places early in the calculation can cause meaningful errors. Keep full precision until the final step.
Practical Tips
For Travelers
- Check the mid-market rate before you leave so you know what "fair" looks like
- Avoid airport exchange kiosks (highest markups)
- Pay in the local currency when given a choice — "dynamic currency conversion" at ATMs and card terminals usually has a worse rate
- Withdraw larger amounts less frequently to minimize per-transaction ATM fees
For Business and Accounting
- Record the rate and date used for each conversion
- Use the same rate source consistently (e.g., central bank reference rate)
- For budgets and forecasts, use a slightly conservative rate to buffer against volatility
- Consider the timing: spot rate for immediate transactions, forward rate for future obligations
For Sending Money Internationally
- Compare the total cost (spread + fees), not just the exchange rate
- Online transfer services typically offer better rates than bank wire transfers
- The best rate means nothing if the service is slow or unreliable — balance cost with convenience
FAQ
How do I convert currency?
Multiply the source amount by the exchange rate. For example, 500 USD at a rate of 0.92 EUR/USD = 500 × 0.92 = 460 EUR.
What is the mid-market exchange rate?
The mid-market rate is the midpoint between the buy and sell prices on the global foreign exchange market. It's the "true" rate before any provider adds their markup. When you search "USD to EUR" online, you typically see the mid-market rate.
Why is the exchange rate at my bank different from what I see online?
Banks add a spread (markup) to the mid-market rate. This spread is their profit on the transaction. Consumer exchange rates are typically 1–4% worse than the mid-market rate.
How do I calculate the inverse exchange rate?
Divide 1 by the rate. If 1 USD = 0.92 EUR, then 1 EUR = 1 ÷ 0.92 ≈ 1.087 USD.
What is a currency spread?
The spread is the difference between the buy price and sell price of a currency pair. It represents the cost of exchanging money. A tighter spread means lower cost for the consumer.
How much does it cost to convert currency?
It depends on the method. Online transfer services typically charge 0.5–1.5% via spread. Bank branches charge 2–4%. Airport kiosks can charge 5–12%. Some services also add a flat fee on top of the spread.
What is a cross rate?
A cross rate is an exchange rate between two currencies derived using a third common currency (usually USD). For example, to find the GBP/JPY rate, you can use the known GBP/USD and USD/JPY rates.
Do exchange rates change on weekends?
The interbank foreign exchange market is closed on weekends (Saturday and Sunday). Rates you see quoted on weekends are typically the last available rate from Friday's close. Rates can gap (jump) when markets reopen on Monday.
What causes exchange rates to change?
Interest rate decisions, inflation data, trade balances, political events, and market speculation. Central bank policy announcements tend to cause the largest short-term moves.
Should I exchange currency before or during my trip?
Neither is universally better. Compare the rate and fees from your home bank, your destination ATMs, and any online services. Avoid exchanging large amounts at airports, where rates are typically the worst.
What does "dynamic currency conversion" mean?
When paying with a card abroad, you may be asked to pay in your home currency instead of the local currency. This is called dynamic currency conversion (DCC). The merchant's terminal applies its own exchange rate, which is almost always worse than your card issuer's rate. Choose to pay in the local currency.
How do I know if I'm getting a good exchange rate?
Compare the rate you're offered against the current mid-market rate. If the difference is less than 1%, it's competitive. Above 3%, shop around.
Related Tools
- Currency Converter — calculate conversions with any exchange rate
- Percentage Calculator — calculate percentages for spread and fee comparisons
- Percentage Change Calculator — measure how much an exchange rate has moved
- Inflation Calculator — see how purchasing power changes over time
- Discount Calculator — useful for calculating effective rates after fees