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Foreign exchange rates

One of the top factors to consider when transferring money overseas.

The exchange rate is the value of one country’s currency exchanged for another. Find out how exchange rates are calculated, what affects the change and where to find the best rates.

How are foreign exchange rates calculated?

Foreign exchange rates are calculated based on the currency values of the two currencies being exchanged. Take an example of the Philippine peso and the US dollar. If ₱1 equals USD$0.0205, this means you will receive USD$0.0205 for every ₱1.

The same will apply if you want to know how many pesos you can purchase with 1 US dollar. With an exchange rate of USD$0.0205, you will get ₱48.67 in exchange for USD$1.

With these examples, if you transfer ₱20,000 to the U.S., the recipient will receive USD$410.92 (20,000 x .0.0205). And when transferring USD$100 to the Philippines, your recipient will receive ₱4,867 (100 x 48.67).

Strengthening and weakening values

Foreign exchange rates can rise and fall. If a currency increases in value, it’s said to have strengthened — meaning the currency will be exchanged for more against another currency. For example, if 1 PHP was being exchanged for 0.0207 USD in July and it changes to 0.0210 USD in October, the peso is said to have strengthened against the U.S. dollar.

If a currency falls in value, it’s said to have weakened — meaning it will be exchanged for less against another currency. For example, if 1 PHP was being exchanged for 0.0209 USD in October and changes to 0.0201 USD in November, then the pesos is said to have weakened against the U.S. dollar.

Get the latest foreign exchange rates

Use our comparison table to estimate exchange rates using real-time interbank rates.

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Know your values

Knowing the value of your currency in relation to foreign currencies will help you analyze investments priced in foreign currencies. For instance, for a Filipino investor, knowing the PHP to USD relation is important if he or she is looking to buy property in the US. The exchange rate is also useful to know for other reasons:

  • If you’re planning on traveling, knowing the exchange rate shows you your purchasing power so you know in advance what you can purchase with a certain amount of money. This will help you to budget for your trip.
  • Foreign exchange rates help you decide whether to go for local products or imports from other countries. If the foreign exchange rates from your trading partner countries are favorable, you might consider importing products if the overall cost will be lower than when you buy locally produced products. On the other hand, they’ll also assist you in deciding where to export.
  • If you regularly send money overseas — for example, to your family — you’ll want to know what the exchange rate is so you know how much money is actually reaching your destination.

How important is the exchange rate?

A solid exchange rate is crucial. When it comes to larger amounts, even two cents can save — or cost you — hundreds. If you have the luxury of time, you may be able to take advantage of a limit order, which allows you to set a target exchange rate with a service or broker that the markets 24/7 to ensure you don’t miss that target. Some services, like OFX money transfers, offer free limit orders for transfers of USD$35,000 and more.

When a few cents totals thousands

How important is the exchange rate? Say you need to get 500,000 euros to a broker in Spain for a down payment on a pied-à-terre or similar piece of real estate. The mid-market rate for pesos to euros is 1 PHP = 0.01748 EUR. You’re happy to find two online services that are pretty close to the mid-market rate — one is offering 0.01750 for your dollar and the other 0.01755. But to be sure which is the better deal, you crunch the numbers.

Service AService B
Exchange rate1 PHP = 0.01750 EUR1 PHP = 0.01755 EUR
Inverse exchange rate1 EUR = 57.1428 PHP1 EUR = 56.9800 PHP
500,000 euros in pesos₱28,571,400₱28,490,000

Finding the inverse exchange rate, you learn that the exchange rates are a mere 1 cent difference (0.1628 cents, to be exact). Yet, when applying these rates to 500,000 euros, you’d lose ₱81,400 to the second money transfer service on the exchange rate alone. That’s a lot of rioja you could be sipping in Madrid.

Why is the exchange rate I get worse than what I see on the news?

The rate you receive is lower because the rates you see on the evening news or on a business news website is the “interbank rate.” This is a rate used between banks when they buy and sell currency among themselves. The rate you receive will have a margin built into it, or other fees, which makes it less competitive than the interbank rate.

As a consumer, the rate you get will also depend on where you exchange your money. Providers like banks, currency exchange kiosks and PayPal traditionally offer poorer exchange rates when compared to currency exchange services like OFX. Compare rates thoroughly before carrying out an exchange.

Where can I find the best exchange rate?

When transferring funds internationally or exchanging currency for a trip overseas, you want to get the most bang for your buck. A few ways to get the best exchange rate possible:

  • Avoid small currency exchange kiosks you see at airports or train stations: Although such booths may be convenient, they typically charge high fees. They take advantage of people’s need to exchange their currencies and charge highly for their convenience.
  • Use non-bank exchange services: Providers like OFX and WorldRemit offer competitive exchange rates and low margins, giving you better value. If you’re sending money overseas, these companies typically charge lower fees than traditional banks and provide 24/7 customer support.
  • Convert cash when rates are favorable: If you know you need to make an international transfer or you will be traveling overseas, monitor the foreign exchange rates and exchange your cash when rates are favorable to you. Carry out your conversion at an exchange provider that charges low fees and has a competitive rate, and you’ll benefit by saving money.

Which bank is best for currency exchange rates?

Many of the major banks don’t publish their foreign exchange rates online and won’t provide live exchange rate data to you by phone or in person unless you’re an account holder. The higher the percentage, the more expensive your transfer. More favorable exchange rates can be found by comparing money transfer providers instead of sticking with the bank.

How do exchange rates work?

Exchange rates can be either flexible or fixed.


Flexible exchange rates are determined by the foreign exchange market, commonly known as the forex market. Flexible exchange rates change throughout the day depending on what traders think the currency is worth and other factors. Flexible exchange rates are said to be “floating” and can fluctuate regularly due to many factors.


A fixed, or pegged, rate is where a currency’s value is maintained against another by its government. In this case, a government will set a price against a major currency like the euro, Japanese yen or U.S. dollar. To maintain this rate, they’ll need to reserve an amount of this foreign currency. If demand for this currency drives the exchange rate up, they’ll need to release more of this foreign currency into the market to meet the demand. And if demand is low, they’ll have to do the opposite and buy this currency.

As many will quickly point out, the majority of exchange rates aren’t purely floating or purely pegged. Most pegged rate systems will rely on a floated currency, so they’re really using a “floating peg” system. And most floating currencies are influenced by their government’s economic policies, such as tax cuts.

What influences foreign exchange rates?

Exchange rates are some of the major determinants of a country’s economic performance. This is because countries depend on foreign trade with other countries across the world to sustain their economy. For example, the Philippines’ economy cannot be stable without trading with the U.S., Canada, China and the U.K., among other countries. So exchange rates will affect both imports and exports, and in turn influence the balance of trade of a country.

Aside from demand and supply being the main determinants of foreign exchange, there are a number of underlying factors — both geopolitical and economic – that affect the exchange rate. Some of the most common include:

  • Interest rates

Interest rates charged by the central bank in a particular country will affect the currency value of that country. A country whose central bank has higher interest rates will give lenders higher returns, and this tends to attract foreign investors. As a result, the exchange rate will increase. Consequently, higher interest rates will increase the exchange rate of a country, mainly when other factors of the economy remain stable and the interest rate is the major factor to influence the economy.

For example, if the Philippine central banking system is offering high interest rates, investors from foreign countries such as the U.K. and Australia are likely to be attracted to invest in the country. As a result, the exchange rates for the Philippine peso will rise due to the increased demand.

  • Terms of trade

The terms of trade of a country are determined by the balance between exports and imports. If the prices of exports from a country rise more than those of its imports, the terms of trade in that particular country will be greatly improved. This basically means that the country’s exports are in high demand. The final results will be that the country will receive more revenue from its exports and its currency will also be in high demand, leading to an increase in the currency’s value.

The reverse will happen if the country’s export prices rise by a smaller rate than that of its imports. The demand for exports will be low and the country will be importing more than its exports. This will decrease its currency’s demand and value.

So if the Philippines is exporting more goods to foreign countries, its currency is likely to be in high demand and foreign exchange rates will be higher.

  • Inflation

A country with lower inflation rates will have a high currency value because its purchasing power increases in comparison with other countries. Consequently, when a country is affected by the ongoing worldwide economic crises, its inflation will increase. This will reduce the country’s purchasing power, depreciate its currency exchange rates and its trading partners will perform better than it.

Countries with relatively low inflation rates such as the U.S., Canada, Germany, Japan, Switzerland and Australia normally have high purchasing power and their currency values do not depreciate much.

  • Political climate

No investor will take the risk of investing in a country that is politically unstable. Investors will look for countries with a stable political climate so their capital is safely invested. Generally, countries with a stable political climate will have strong economic performance and will attract more investors.

Consequently, an unstable political climate will cause a loss of confidence in a country’s currency and this will lower its exchange rate.

  • Public debt

A country with high public debt is likely to welcome inflation, and this may mean the country will have to do everything possible to pay off the debt, even if it means printing money for that purpose. When this happens, the currency value of that particular country will be reduced and this will lower its exchange rate.

Consequently, a country with high public debt will lower its currency exchange rate and this will not attract foreigner investors because their investment will be at risk.

Who do foreign exchange rates affect?

In general, fluctuating rates affect a range of stakeholders, including:

  • Travelers – When you travel overseas, you may have less or more money to spend depending on the strengths or weaknesses of the currencies you’re trading.
  • Locals – If your country has a strong foreign currency, you may see some imported items become cheaper while other items become more expensive.
  • Importers – If you import goods into your country, you may pay more or less — depending on how the rates have fluctuated — for the same goods.
  • Exporters – If you sell goods to other countries, you may pay more or less for the same goods.
  • Investors – Many trade in foreign currencies, so a drop in the value of a currency they’re trading will mean losses, while a gain will see profits.

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