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Basics of foreign currency exchange rates

Learn how to avoid paying more than the official exchange rate.

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Peter Carleton

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Zak Killermann
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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.

What's in this guide?

  1. Exchange rates defined
  2. How to use an exchange rate
  3. Understanding the impact of foreign currency exchange rates
  4. How to get the best exchange rate
  5. Send money abroad after comparing exchange rates
  6. Bottom line

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.

Flexible currencies

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.

Fixed currencies

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.

    Min. Transfer Amount Transfer Speed Online Transfer Fee Rate Amount Received Description CTA Details
    OFX International Money Transfers
    		$1,000 1 day USD 0.00 0.815 EUR 4,075 OFX has no maximum limit transfers, with competitive exchange rates for 45+ currencies. Go to site Show details
    CurrencyTransfer
    		GBP 1,000 1 - 2 days USD 0.00 0.815 EUR 4,075 Exclusive: Minimum transfer of $1,000 for Finder readers (normally $5,000).
    CurrencyTransfer lets you shop around for the best exchange rate on its online marketplace.     		Go to site Show details
    XE Money Transfer
    		USD 1 Same day USD 0.00 0.82 EUR 4,098 XE has fast transfers with low fees and a range of foreign currency tools. Go to site Show details
    Currencies Direct International Money Transfers
    		$2,000 1 day USD 0.00 0.815 EUR 4,075 CurrenciesDirect makes transferring money abroad simple with bank-beating exchange rates. Go to site Show details
    Remitly International Money Transfers
    		$10 Within an hour USD 1.99 0.807 EUR 4,032 Special offers like free transfers and better exchange rates available for new customers.
    Remitly has quick, affordable transfers around the world, with both express and economy options.     		Go to site Show details
    Wise (TransferWise) International Money Transfers
    		$1 1 - 2 days USD 40.00 0.823 EUR
    4,083
    		 Wise uses the mid-market rate and transparent fees to help you send money in 45+ currencies. Go to site Show details
    MoneyGram International Money Transfers
    		$1 Within an hour USD 8.00 0.805 EUR 4,017 MoneyGram has fast cash pick-up transfers to more than 350,000 agent locations worldwide. Go to site Show details

    Compare up to 4 providers

    Disclaimer: Exchange rates change often. Confirm the total cost with the provider before transferring money.

    Bottom line

    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.

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