Currency Converter

How Exchange Rates Work

An exchange rate is the price of one currency expressed in terms of another. When you see a quote like "1 USD = 0.92 EUR," it means one United States dollar can be exchanged for 0.92 euros. Exchange rates fluctuate constantly during trading hours based on supply and demand in the global foreign exchange (forex) market, which is the largest financial market in the world with over $7.5 trillion in daily trading volume.

Most major currencies operate under a floating exchange rate system, where their value is determined by market forces. Central banks may intervene occasionally to stabilize extreme volatility, but the rate is largely set by traders, institutions, and governments buying and selling currencies. Some countries, particularly in the Middle East and parts of Asia, maintain fixed (pegged) exchange rates, where the government ties their currency's value to a major currency like the US dollar at a set ratio.

The exchange rate you receive when converting money depends on where and how you convert. Banks, airport kiosks, online platforms, and credit card networks all offer different rates. The difference between the mid-market rate (the true rate between currencies) and the rate you are offered is called the spread or markup, and it represents the cost of the conversion service.

Spot Rate vs. Forward Rate

The spot rate is the current market exchange rate for immediate delivery (typically settled within two business days). This is the rate displayed in our converter above and is the benchmark used for most day-to-day transactions, travel, and online purchases.

A forward rate is an agreed-upon exchange rate for a transaction that will settle at a specific future date. Businesses use forward contracts to lock in exchange rates weeks or months in advance, protecting themselves against unfavorable currency movements. For example, a US company expecting to pay a European supplier 100,000 euros in 90 days might use a forward contract to fix the dollar cost today rather than risk the rate moving against them.

The difference between the spot rate and forward rate reflects the interest rate differential between the two currencies. If the US interest rate is higher than the eurozone rate, the forward rate for USD/EUR will show the dollar at a slight discount to the spot rate, and vice versa. This relationship is known as interest rate parity.

Factors That Affect Exchange Rates

Major World Currencies

The table below lists the most actively traded currencies in the world, along with their ISO 4217 codes and symbols. Together, these currencies account for the vast majority of global forex trading volume.

Understanding Currency Exchange: A Complete Guide

Currency exchange is the process of converting one country's money into another country's money at a specific exchange rate. This fundamental financial transaction powers international trade, tourism, investment, and global business operations, with over $7.5 trillion exchanged daily in the foreign exchange (forex) market—making it the world's largest and most liquid financial market.

The exchange rate between two currencies reflects their relative purchasing power and is determined by supply and demand dynamics in the global market. When demand for a currency increases—perhaps because investors want to buy that country's assets or importers need it to pay for goods—the currency appreciates (strengthens). Conversely, when supply exceeds demand, the currency depreciates (weakens). These forces operate 24 hours a day across global financial centers as Tokyo, London, and New York markets open and close in sequence.

How Exchange Rates Are Quoted: Understanding Currency Pairs

Currency exchange rates are always quoted in pairs because you're exchanging one currency for another. The format is BASE/QUOTE, where the base currency is what you're selling and the quote currency is what you're buying. For example, EUR/USD = 1.09 means one euro equals 1.09 US dollars. To buy one euro, you need to pay 1.09 dollars. The inverse would be USD/EUR = 0.92, meaning one dollar gets you 0.92 euros.

The US dollar is involved in roughly 88% of all forex transactions and serves as one half of most major currency pairs. EUR/USD (euro-dollar) is the most heavily traded pair, followed by USD/JPY (dollar-yen) and GBP/USD (pound-dollar, nicknamed "Cable"). Cross-currency pairs like EUR/GBP or AUD/JPY don't include the US dollar but are often calculated by combining two USD pairs—for instance, EUR/GBP is derived from EUR/USD and GBP/USD rates.

The Hidden Costs of Currency Exchange: Spreads, Fees, and Markups

The mid-market rate (also called the interbank rate) is the midpoint between the buy and sell price for a currency in the wholesale market. This is the "true" rate you see on Google, financial news, and our converter above. However, you rarely get this rate when actually exchanging money—instead, you pay a spread (the difference between buy and sell rates) plus potential fees that constitute the exchange provider's profit.

For example, if the mid-market rate is 1.00 USD = 0.92 EUR, a bank might offer to sell you euros at 0.89 and buy euros from you at 0.95, creating a 6.7% spread. On a $1,000 exchange, this spread costs you $67 in value compared to the mid-market rate. Banks, airports, and hotels typically charge 3-10% markups, while specialized transfer services like Wise or OFX often charge 0.5-2% markups, making them significantly more economical for larger transfers.

Credit card foreign transaction fees add another 1-3% layer on top of the exchange rate. A purchase of 1,000 euros charged to a card with a 3% foreign transaction fee would cost $1,090 at the mid-market rate of $1.09, plus $32.70 in fees, totaling $1,122.70. Cards with no foreign transaction fees (offered by many travel-focused credit cards) eliminate this surcharge, making them excellent tools for international spending. Always understand the complete cost structure—some services advertise "zero fees" but hide profits in poor exchange rates.

Fixed vs Floating Exchange Rate Systems

Most major world currencies operate on floating exchange rate systems, where rates are determined by open market forces without government intervention. The US dollar, euro, British pound, Japanese yen, and most developed market currencies float freely, with their values fluctuating minute-by-minute based on trading activity. Central banks may occasionally intervene to stabilize extreme movements, but generally allow market forces to set rates.

Fixed (or pegged) exchange rate systems tie a currency's value to another major currency or basket of currencies. For example, the Hong Kong dollar is pegged to the US dollar at approximately 7.80 HKD = 1 USD, maintained by the Hong Kong Monetary Authority through market interventions. Saudi Arabia's riyal is similarly pegged to the dollar at 3.75 SAR = 1 USD. These pegs provide stability for trade and investment but require the central bank to hold large foreign currency reserves to defend the peg during market pressure.

Managed float systems blend both approaches—the currency primarily floats but the central bank actively intervenes to influence its value within certain bands. China operates a managed float for the yuan, allowing daily fluctuations within a controlled range around a central parity rate. Singapore and India also employ managed floats to balance market forces with economic policy objectives like export competitiveness or inflation control.

Currency Exchange for International Travelers: Best Practices

Smart travelers minimize currency exchange costs through strategic planning and avoiding expensive exchange channels. Before departure, notify your bank and credit card issuers of travel plans to prevent fraud blocks. Research which of your cards have no foreign transaction fees—Capital One, Chase Sapphire cards, and most airline credit cards typically don't charge these fees. These cards should become your primary payment method abroad.

Upon arrival, use local ATMs to withdraw cash in the local currency. ATM withdrawals typically offer rates 1-3% above the mid-market rate—much better than airport exchange counters (5-10% markup) or hotels (7-15% markup). Withdraw larger amounts less frequently to minimize per-transaction fees, but don't carry excessive cash for security reasons. Most banks charge $3-5 per international ATM withdrawal; some online banks like Charles Schwab reimburse all ATM fees worldwide.

When paying by card abroad, merchants sometimes offer Dynamic Currency Conversion (DCC)—the option to pay in your home currency instead of the local currency. Always decline this offer and pay in local currency. DCC rates include markups of 3-7% beyond what your card issuer charges, essentially letting the merchant profit from a worse exchange rate. The option sounds convenient ("pay in dollars!") but costs significantly more than letting your card issuer handle the conversion at their rate.

For extended trips or when you need local currency before departure, consider ordering foreign currency online from your bank 5-7 days in advance. Rates are typically better than airport counters, and you'll have cash immediately upon arrival. Alternatively, specialized services like Wise (formerly TransferWise) offer borderless accounts that hold balances in multiple currencies, allowing you to load funds at mid-market rates before traveling and spend directly from the account via debit card.

International Money Transfers: Comparing Your Options

Sending money internationally requires understanding the full cost structure: exchange rate markup, transfer fees, and delivery speed. Traditional bank wire transfers are secure but expensive—typically charging $25-50 per transfer plus 3-6% hidden in poor exchange rates. A $5,000 wire transfer might cost $50 upfront and lose another $200 to exchange rate markup, totaling $250 (5%) in costs. For urgent same-day transfers, banks provide reliability but at premium prices.

Specialized transfer services like Wise, OFX, Remitly, and Xe offer dramatically better economics for most consumers. Wise charges transparent fees (typically 0.3-1% depending on currency corridor) and uses the mid-market rate with no hidden markup. A $5,000 transfer might cost $30 total with delivery in 1-2 business days—$220 cheaper than a bank wire. These services excel for regular transfers, paying contractors, or sending funds to family abroad. Most support direct bank account deposits, though some offer cash pickup for recipient convenience.

PayPal and Venmo facilitate international transfers with extreme convenience but charge among the highest fees: typically 3-5% exchange rate markup plus 1-5% transfer fees. The same $5,000 transfer could cost $200-500 in total fees—acceptable for splitting a dinner bill internationally, but economically poor for substantial transfers. Use mainstream payment apps only when convenience outweighs cost, or for small amounts where absolute fees matter less than percentage costs.

Cryptocurrency as an international transfer medium offers theoretical advantages (fast, borderless, no intermediaries) but practical complications. Volatile exchange rates mean the recipient's value can drop 5-10% between sending and cashing out. Exchange fees on both ends (buying crypto, selling to local currency) often total 2-4%. Regulatory uncertainty and recipient knowledge requirements limit adoption. For specific corridors like US-Philippines or UK-India, crypto-enabled services like Bitcoin-backed remittance platforms can be competitive, but compare all-in costs against traditional services.

Business Currency Exchange: Hedging and Risk Management

Companies engaged in international trade face currency risk—the possibility that exchange rate movements will reduce profit margins or increase costs. An American importer buying 100,000 euros of goods for resale when EUR/USD = 1.08 expects to pay $108,000. If the euro strengthens to 1.12 by payment time three months later, the cost jumps to $112,000, eliminating $4,000 in expected profit. Conversely, if the euro weakens to 1.04, the cost drops to $104,000, increasing profit.

Forward contracts allow businesses to lock in exchange rates for future transactions, eliminating this uncertainty. The importer could arrange a 3-month forward contract at 1.08, guaranteeing the $108,000 cost regardless of future market rates. The forward rate might be slightly worse than the spot rate (say 1.09 instead of 1.08), reflecting the interest rate differential between currencies and the bank's fee, but provides certainty for budgeting and pricing decisions. Large corporations hedge billions in currency exposure using forward contracts to stabilize cash flows and protect margins.

Currency options provide another hedging tool, offering the right (but not obligation) to exchange currency at a predetermined rate. Unlike forwards which commit both parties, options let businesses benefit if rates move favorably while limiting downside if rates move unfavorably. The tradeoff is option premium cost (typically 1-3% of the notional amount). Options suit situations with uncertain transaction timing or when companies want downside protection while preserving upside opportunity.

Natural hedging involves structuring operations to minimize currency exposure without financial instruments. A US company manufacturing in Mexico for sale in Mexico has naturally hedged currency risk—both revenues and costs are in pesos. Similarly, a European company with US revenue might source materials from the US or maintain dollar-denominated debt, offsetting dollar revenue with dollar costs. While not always feasible, natural hedges are often the most cost-effective risk management approach.

Central Bank Policies and Their Impact on Exchange Rates

Central banks influence their currencies primarily through interest rate policy. When the Federal Reserve raises US interest rates, dollar-denominated assets (bonds, savings accounts, etc.) become more attractive to international investors seeking higher yields. Increased demand for these assets means increased demand for dollars to buy them, strengthening the dollar against other currencies. Conversely, rate cuts reduce return on dollar assets, decreasing demand and weakening the dollar.

Quantitative easing (QE)—central banks buying government bonds or other assets with newly created money—increases money supply and typically weakens currencies. The European Central Bank's massive QE programs from 2015-2018 contributed to euro weakness against the dollar, as the increased euro supply exceeded demand growth. Japan's decades of QE have been partly responsible for the yen's long-term depreciation, though recently reversed as other major economies adopted QE during COVID-19.

Direct currency intervention occurs when central banks buy or sell their currency to influence its value. The Swiss National Bank famously intervened heavily in 2011-2015 to prevent the Swiss franc from strengthening excessively (a strong franc hurts Swiss exporters), buying euros and other currencies while selling francs. When they abandoned the EUR/CHF floor in January 2015, the franc surged 30% in minutes, demonstrating the power and limits of central bank intervention.

Economic Indicators That Move Currency Markets

Employment reports significantly impact currencies, particularly the US Non-Farm Payrolls report released monthly. Strong job growth suggests economic expansion, supporting the central bank's ability to maintain or raise interest rates, which attracts foreign capital and strengthens the currency. Weak employment signals potential rate cuts, weakening the currency. Currency markets often move 0.5-1.5% within minutes of major employment data releases.

Inflation data directly influences central bank decisions and currency values. Higher-than-expected inflation often strengthens currencies in the short term (suggesting imminent rate hikes) but can weaken them long-term (eroding purchasing power). Consumer Price Index (CPI) and Producer Price Index (PPI) releases in major economies routinely trigger significant forex volatility. Central banks targeting 2% inflation will adjust policy when actual inflation deviates persistently from this target.

GDP growth reports measure economic expansion or contraction, influencing currency strength through multiple channels. Robust GDP growth attracts foreign investment, increases business confidence, and supports higher interest rates—all currency-positive factors. Recessions or below-trend growth trigger the opposite effects. Quarterly GDP releases for the US, eurozone, UK, and Japan are among the most closely watched economic events in forex markets.

Trade balance data reveals whether a country exports more than it imports (surplus) or imports more than it exports (deficit). Persistent trade surpluses generate structural currency demand as foreign buyers need local currency to pay for exports, supporting currency strength. Germany and China's large surpluses contribute to euro and yuan strength. Conversely, the US trade deficit creates structural dollar supply, though this is offset by dollar's reserve currency status and capital inflows into US financial markets.

Currency Volatility and Risk Management for Individuals

Exchange rate volatility creates both opportunity and risk for individuals with international financial exposure. Expats receiving salaries in one currency while supporting families in another face ongoing conversion risk. A British worker in the US earning $100,000 who supports family in the UK saw their pound-equivalent salary fluctuate from £74,000 (when GBP/USD was 1.35 in early 2021) to £90,000 (when GBP/USD dropped to 1.11 in late 2022)—a £16,000 variance based solely on exchange rate movements.

Regular international investors accumulating retirement savings in foreign markets should employ systematic currency risk management. Dollar-cost averaging into foreign investments naturally hedges currency risk over time—you buy more foreign assets when the foreign currency is weak (getting more shares per dollar) and fewer when it's strong, averaging out exchange rate fluctuations. This is particularly relevant for Americans investing in international stock funds or Europeans investing in US markets.

Individuals planning large purchases in foreign currencies (buying overseas property, paying foreign university tuition, etc.) should monitor rates and consider timing strategies or forward contracts. A parent knowing they'll pay £30,000 in UK university fees in six months faces uncertainty—will that cost $37,000 or $42,000? Purchasing a forward contract locks the rate today, providing budget certainty. Alternatively, setting rate alerts and converting opportunistically when rates are favorable can save thousands on large transactions.

The Future of Currency Exchange: Digital Currencies and Innovation

Central Bank Digital Currencies (CBDCs) represent government-issued digital money operating on blockchain or distributed ledger technology. China's digital yuan (e-CNY) is already in pilot programs serving millions of users. The European Central Bank is developing a digital euro. These CBDCs could revolutionize cross-border payments, potentially reducing transaction costs, settlement times, and the need for correspondent banking relationships. However, they also raise privacy concerns and could give governments unprecedented visibility into citizens' financial activities.

Stablecoins—cryptocurrencies pegged to fiat currencies like the US dollar—are emerging as international payment rails, particularly for remittances and business transfers. USDC and USDT (dollar-pegged stablecoins) facilitate billions in monthly cross-border value transfer, often settling in minutes rather than days and at costs of 0.1-1% rather than 3-8%. Regulatory clarity remains uncertain, but stablecoins demonstrate how blockchain technology can improve the efficiency of international money movement.

Real-time payment networks and open banking initiatives are making currency exchange faster and cheaper even within traditional systems. The European Union's SEPA Instant allows euro transfers to settle in seconds. FedNow in the US enables instant dollar transfers. As these systems interconnect with foreign exchange platforms and cross-border payment networks, the future likely involves near-instant currency conversion at much lower costs than today's 1-3 day settlement times and 2-5% total costs. For consumers and businesses, this evolution promises continued improvement in accessibility, speed, and affordability of global money movement.

Tips for Converting Currency