How to Read and Calculate Currency Exchange Rates?

exchange rates

Nowadays it is very easy to find the exchange rate quotes of the day. However, reading them and making the required calculations can be hard for those unfamiliar with the technique.

Consequently, an exchange rate is often used to represent the price of two different currencies against each other, for example dollars to pounds or pounds to Euros.

Exchange rates often fluctuate throughout the week, as different currencies are traded in the Forex market. This trading can either push their prices up or down, to determine a market price. This market price is often different from the one that you will get from a bank, when exchanging your foreign currency.

As much as you can find current exchange rates in Bureaux de Change, and banks. These rates often vary in accordance to your needs. For instance, a business consultant is likely to use a Forex trading platform for real-time data while a traveller visiting Winnipeg, Canada would just need to compare travel exchange rates or the currency exchange rates Winnipeg at the airport or banks.

Here is how you can read and calculate currency exchange rates:

How to read currency exchange rates

You can easily find exchange rates online on special websites like XE.com or banking institutions. Nonetheless, you will still need to know how to interpret them, in order to make a better choice when it comes to finding the best way for your exchange.

Subsequently, currency quotes are often given in pairs, like EUR/USD, which is the number of U.S. dollars you need in order to purchase one Euro. Another example is USD/CAD, which is the number of Canadian dollars needed to purchase one U.S. dollar.

The first listed currency always stands for one unit of that currency, while the exchange rate shows how much of the second currency is needed to make the purchase of one unit of the first listed currency.

Here is an example:

If USD/CAD=1.0950, then you will have to divide 1/1.0950=0.9132, to get how much U.S. dollars you need to buy one Canadian dollar.

Now this price (0.9132) would be reflected on the CAD/USD currency pair.Take note of the currency positioning here, it has switched.

Therefore: CAD/USD=0.9132

These currencies are always relative to one another, with the Euro and U.S. dollar being given the reserve currencies status by most international central banks, as they are the most quoted currencies globally.

Moreover, these currency pairs often fluctuate due to different economic factors like supply and demand. They can also vary due to the commercial and hedge fund activity or financial trading as well as other economic indicators.

You should also take note that currency exchange businesses, especially those located at airports, the borders, tourist locations or streets and within the city tend to exaggerate the currency rate differences, in order to make big revenues. They will charge a wider spread between the currencies, so you are better off making an exchange withthe banks.

How to calculate currency exchange rates

Calculating currency exchange rates is not that hard, it is just confusing to those with zero numerical skills. Most world currencies are often quoted directly against the U.S. dollar. Therefore, when you get a direct quote, it always means the number of foreign currency that you need to buy or sell one U.S. dollar.

For example if the market rate for EUR/USD=1.3330, a currency exchanger may charge you 1.35 or more.

Therefore, if you want to buy Euros you will just have to divide the US dollars you have by 1.3330, to get Euros. The amount in Euros is likely to be less than the US dollars, since Euros are expensive.

As stated before, the first listed currency always stands for one unit of that currency, while the exchange rate shows how much of the second currency is needed to make the purchase of one unit of the first listed currency.

Example:

EUR/USD=1.3330, and you have USD1, 000 just divide your USD with the currency exchange rate and you will have 750.19 Euros.

1EUR=1.3330USD

?=1000USD

Answer=750.19 Euros

Another example is if you want to know how many 1500 Euros you can get in dollars. Just multiply 1500 by 1.35 and you will get 2,025 USD. This is because Euros are expensive, so one euro is likely to cost more than one U.S. dollar and hence the multiplication.

EUR/USD=1.35

1 EUR=1.35 USD

1,500EUR=?

The answer is 2,025USD

Conclusion

Reading and calculating currency exchange rates are not that hard, you just have to get used to it, as they can help you save a ton of money.

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