Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Basics of foreign currency exchange rates
Learn how to avoid paying more than the official exchange rate.
Before you take a trip abroad or do business with another country, find out what the currency exchange rates are. The rate of exchange can impact the money you can make or how much you’ll spend abroad.
Exchange rates defined
An exchange rate is the value, or price, of one currency compared to another currency. Exchange rates are written in two ways, depending on which way you want to exchange. For example, the US dollar to euro relationship can be written as:
- 1 USD = 0.901241 EUR
This tells you how many euros you can buy with $1.
- 1 EUR = 1.10958 USD
This tells you how many US dollars you can buy with €1
Two types of currency pairs exist in the world: fixed and flexible.
Exchange rates that shift constantly and are determined by the maximum amount someone is willing to pay for a currency and the minimum amount someone is willing to sell it for — similar to stocks. The globally accepted exchange rates are what you see when you search a currency pair on Google or XE. These are known as the mid-market rate, short for the middle-market.
Opposite of flexible currencies, these are designed to maintain a consistent exchange rate with certain currency pairs. A country may fix or “peg” its currency to another currency with it trades with. This can help increase stability between the two countries for imports and exports. The Chinese yuan is pegged to the USD, and generally stays around 1 USD = 7 CNY.
How to use an exchange rate
If you’re traveling from the US to France, you need to exchange your dollars for euros at a bank or foreign exchange counter. The amount of euros you get for each dollar depends on the exchange rate between the two currencies at the time. If the exchange rate is roughly 0.90, for example, you’ll get 0.90 euros for each dollar you exchange. At this price, $100 will buy you about €90.
Understanding the impact of foreign currency exchange rates
Foreign exchange rates can have a strong impact on travelers, students and businesses that deal in foreign currencies.
- Impact for tourists traveling abroad. If you’re visiting a country and the value of your currency falls against the other currency, your trip becomes more expensive. You’ll have to spend more money on hotels, travel, goods and attractions.
- Impact for exporters. If you export products, the exchange rate between foreign currencies can impact your revenue. For example, if you sold goods in Canada for $1, and the CAD to USD exchange rate was 1.00, your sale is worth $1 USD. However, if the Canadian dollar appreciated against the US dollar to an exchange rate of 1.25, that $1 CAD sale is now worth $1.25 USD.
- Impact on students. Student paying tuition and course fees in a foreign currency could see fees increase if exchange rates between the currencies increase.
How to get the best exchange rate
Getting the best exchange rate depends on your situation and the currency you are exchanging. Here’s how to get the best exchange rate in the following situations:
- International transfers: Look to money transfer companies that specialize in offering the mid-market rate while checking that the fees you are paying are worth it.
- International travel: Seek out local banks, post offices or even an ATM. Avoid exchange bureaus in tourist areas and airports.
- US exchanges: If your bank operates internationally it may be the best place to get the lowest rate.
Read more on how to get the best exchange rate in our guide that explains each category in greater detail.
Send money abroad after comparing exchange rates
Before sending your US dollars abroad, compare your options and make sure you’re getting the best deal for your transfer. Use our table to compare the rates of many money transfer providers by entering the amount you want to send, selecting the destination currency and clicking Calculate.
If you’re traveling abroad or doing business with foreign companies, the exchange rate can affect your overall finances. Get the best exchange rate by comparing multiple payment methods and using the one that suits your need, depending on your situation.
More guides on Finder
Where to buy Dogecoin (DOGE)
A beginner’s guide to buying and selling this decentralized, peer-to-peer cryptocurrency.
Review: FTX US cryptocurrency exchange
What you need to know about using FTX US, including fees, available cryptocurrencies and what payment methods are available.
Charity Charge Nonprofit Business Mastercard® review
A small business credit card that automatically donates your cashback rewards to charities.
Get up to 90% off popular brands through ThredUp, a secondhand clothing website. Here’s what you need to know before you start shopping.
Best credit cards for rewards in 2021
Take advantage of miles, points and perks with a card that best fits your lifestyle.
Best balance transfer credit cards of 2021
Here are our top balance transfer picks for 2021.
Best business credit cards for 2021
Here are our top picks for 2021.
Sigue international money transfers review
Sigue offers speedy money transfers to 50+ countries, but you have to set up a transfer to see the transaction fees.
How to get life insurance after a DUI or driving offense
A poor driving record may result in higher rates on your life insurance, with some insurers turning you away altogether.
Best secured credit cards of 2021
Our top picks can help you build your credit without paying sky-high fees.
Ask an Expert