How Currency Conversion Works
Currency conversion uses exchange rates to determine how much one currency is worth in terms of another. The formula is:
Converted Amount = Amount × Exchange Rate
Exchange rates fluctuate based on supply and demand in the foreign exchange (forex) market, influenced by interest rates, inflation, trade balances, and political stability.
Exchange Rate Types
- Mid-market rate: The true exchange rate midpoint between buy and sell. This is what you see on Google or financial sites
- Buy rate: The rate a dealer will pay to buy currency from you (lower than mid-market)
- Sell rate: The rate a dealer charges to sell currency to you (higher than mid-market)
- Spread: The difference between buy and sell rates — this is the dealer's profit
Tips for Getting Better Exchange Rates
- Avoid airport exchanges: Airport kiosks typically have the worst rates with 5-10% markups
- Use a no-foreign-transaction-fee credit card: Cards like Chase Sapphire or Capital One Venture charge 0% foreign transaction fees and use near mid-market rates
- Withdraw from ATMs abroad: Usually better rates than exchange counters, though watch for ATM fees
- Compare providers: Online services like Wise (TransferWise) often offer rates much closer to mid-market than traditional banks
- Avoid dynamic currency conversion: When a merchant offers to charge you in your home currency, they add a markup. Always pay in the local currency
Major World Currencies
| Code | Currency | Region |
|---|---|---|
| USD | United States Dollar | United States |
| EUR | Euro | Eurozone (20 countries) |
| GBP | British Pound Sterling | United Kingdom |
| JPY | Japanese Yen | Japan |
| CNY | Chinese Yuan Renminbi | China |
| CAD | Canadian Dollar | Canada |
| AUD | Australian Dollar | Australia |
| CHF | Swiss Franc | Switzerland |