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What Is an Exchange Rate?

An exchange rate is the value of one currency expressed in terms of another currency, which is to say the rate at which one currency can be exchanged for another. Exchange rates fluctuate constantly throughout each trading day due to changes in market demand for one currency relative to another.

Exchange rates are used to determine the value of a currency when it is exchanged for another currency. For example, if the exchange rate between the US dollar (USD) and the euro (EUR) is 1.20 USD/EUR, this means that one euro can be exchanged for 1.20 US dollars.

Exchange rates play a crucial role in international trade and investment, as they affect the cost of imports and exports and can impact the profitability of foreign investments. They are also important for travelers, as they determine how much foreign currency they will receive when exchanging their home currency.

Exchange rates can be determined by various factors, including government policies, interest rates, inflation, and political stability. They are constantly changing, and can be influenced by global events and market speculation.

On this page, we’ll explain what exchange rates are and how they’re calculated. We’ll also answer some common questions about exchange rates.

What Does an Exchange Rate Tell You?

An exchange rate is comprised of two parts:

  1. The base currency
  2. The target exchange currency.

Example: 1 USD = 0.7 GBP*

The exchange rate is written as a ratio that represents the amount of target currency you’ll receive for one unit of the base currency. In the example above, you’ll get 0.7 British Pounds Sterling (GBP) for 1 US dollar (USD).

If you’re exchanging a specific amount of your base currency, the above example of a USD-to-GBP exchange rate looks like this:

Example: 520 USD = 365 GBP (@ 0.7)*

An exchange rate is typically presented as a formula. Often, when you look up an exchange rate, you’ll also see a reverse exchange rate which, in our example above, would be about 1.4 USD for every 1 GBP.

Exchange rates are determined by the native currency’s country.

*Figures are illustrative examples only.

How Are Exchange Rates Determined?

There are three main systems that governments use to determine foreign currency exchange rates: floating, fixed, and hybrid systems.

What Are Floating Exchange Rates?

Floating exchange rates (also called flexible or fluctuating rates) allow a currency’s value to rise or fall according to global supply and demand.

Examples of currencies with floating exchange rates include:

United StatesDollar$
European UnionEuro
United KingdomPound sterling£
SwitzerlandSwiss francFr
Examples of currencies with floating exchange rates.

What Are Fixed Exchange Rates?

Also known as pegged rates, fixed exchange rates aren’t reliant on the whims of the global market. Instead, these currencies move in sync with the price of another country’s currency. Fixed exchange rates can also be pegged to a group of other currencies, known as baskets.

Examples of fixed exchange rate currencies include:

Hong KongDollarHK$
United Arab EmiratesDirhamد.إ
Examples of currencies with floating exchange rates.

What Are Hybrid Exchange Rates?

Some countries opt for an exchange rate that’s neither fixed nor floating, called hybrid rates. Hybrid exchange rate systems typically consist of floating or fixed exchange rates combined with government intervention and control measures.

FAQs About Exchange Rates

Here are some answers to common questions about exchange rates.

How much do exchange rates fluctuate?

Even though some currencies are pegged to another, foreign exchange rates are determined by supply and demand as a whole. Rates fluctuate with geopolitical uncertainty in public awareness, while tend to narrow in range during times of perceived geopolitical stability.

Why are exchange rates from other sources different?

Online sources for exchange rates may receive data from different Application Programming Interfaces (APIs) which could be due to a variety of factors. For example, the rate data could come from different sources or it could be updated at different times.

Do you lose money exchanging currency?

When you exchange money using a service provider (for example, at a bank), you’ll pay a markup on the currency conversion rate. Since the bank is providing this service with its resources and overhead, you could consider the markup to be a fee for services rendered rather than thinking of it as losing money. The difference between the markups (or other fees) that exchange providers charge can vary. If you shop around, you can limit your “loss.”

What is a closed currency?

A closed currency, also known as a restricted currency, cannot be exchanged outside the country of origin. Some closed currencies may only allow the country’s residents to make an exchange while banning the purchase or sale of its currency by foreign residents. Countries can also place restrictions on import and export volumes or completely ban the possession of foreign currencies within their borders.

What is the difference between onshore and offshore currency exchange?

Onshore currency exchanges take place within the country’s borders while offshore currency exchanges occur in a different country than the base currency. For example, if you exchange euros for dollars while in the US, that’s considered an onshore exchange. If, on the other hand, you exchange euros for dollars while in Germany, that would be considered an offshore exchange.

Is it cheaper to use a credit card or cash abroad?

Whether it’s cheaper to use a credit card or cash abroad depends on where you’re going, at what rate you can access the local currency, and what rates your bank charges for transactions on foreign grounds. If you use a card abroad, it is usually cheaper to have it charged in the local currency with dynamic currency conversion (DCC) rates. (Ask your card issuer if you’re unsure.) Some e-banking services like Revolut offer limited no-fee withdrawals in selected foreign currencies abroad.

Which bank has the best exchange rate?

This can vary depending on factors such as the currency, the amount being exchanged, and the country of the bank.

To get the best currency exchange rate, it is recommended to compare the rates offered by multiple banks and financial institutions, including traditional banks, online banks, and foreign exchange specialist providers.

It is also important to consider other factors such as additional fees or charges, and the level of customer service provided.

It is always a good idea to shop around for the best currency exchange rate and to compare rates from multiple providers before making a decision.

Which is the strongest currency in the world?

The “strongest currency” can vary based on various economic and political factors, but some currencies that are often considered strong due to their stable economies, low inflation, and high demand include:

  • Swiss Franc (CHF)
  • United States Dollar (USD)
  • Japanese Yen (JPY)
  • Euro (EUR)

It is important to keep in mind that even these currencies can be subject to fluctuations and changes in value based on shifts in the global economy and other factors.

The relative strength of a currency can also depend on the specific situation, such as the country or region being considered and the individual’s personal financial goals and risk tolerance.

What is the world’s weakest currency?

The “weakest currency” is subjective and can change frequently due to various economic and political factors. However, some currencies that are often considered weak due to high inflation, economic instability, and low demand include:

  • Venezuelan Bolívar (VEF)
  • Iranian Rial (IRR)
  • Syrian Pound (SYP)
  • Zimbabwean Dollar (ZWL)

It is important to keep in mind that these currencies are subject to constant fluctuations and can change rapidly due to shifts in the global economy and other factors.

It is always a good idea to check current exchange rates and compare them with other currencies to make informed decisions when conducting international transactions. At, you can access up-to-date information on exchange rates and use our tools to compare rates and make conversions.

What is the safest currency?

There is no universally recognized “safest” currency as safety is subjective and can vary depending on various factors such as economic stability, political stability, and global events. However, some currencies that are often considered as safe haven currencies due to their strong economies, low inflation, and stability include:

  • United States Dollar (USD)
  • Swiss Franc (CHF)
  • Japanese Yen (JPY)
  • Euro (EUR)

It is important to keep in mind that even these currencies are not completely immune to economic and political turbulence and can also be subject to fluctuations and fluctuations in value.

Does Walmart do currency exchanges?

Yes, Walmart offers currency exchange services in select stores. You can visit a participating Walmart location to exchange foreign currency for US dollars, or to purchase foreign currency using US dollars. The availability of currency exchange services and the types of currencies offered can vary by store, so it is recommended to call ahead to confirm the services offered at a specific location.

Walmart’s currency exchange services typically include a fee, which is added to the exchange rate to determine the final cost of the transaction. It is important to compare the exchange rates and fees offered by Walmart with those offered by other currency exchange providers to ensure that you are getting the best deal.

How do I convert currency in Paypal?

To convert currency in PayPal, follow these steps:

  1. Log in to your PayPal account
  2. Click on the “Wallet” section of your account
  3. Select the currency you want to convert from and to
  4. Enter the amount you wish to convert
  5. Review the conversion rate and click “Convert”
  6. Confirm the conversion and the converted funds will be added to your account balance in the selected currency.

Please note that PayPal charge a hefty fee for currency conversion, so it is important to check the conversion rate and fees before confirming the conversion.