Guide
How Currency Exchange Rates Work (And How to Convert Money)
An exchange rate is simply a price: how much of one currency you need to buy one unit of another. Once you know how to read it, converting money takes one multiplication. Here's how it works, with worked examples and the hidden costs to watch for.
Reading an exchange rate
A rate like 1 USD = 0.92 EUR means one US dollar buys 92 euro cents. To go from dollars to euros, multiply by 0.92. To go back from euros to dollars, divide by 0.92 (or multiply by 1 ÷ 0.92, about 1.087).
Worked example
You want to buy a jacket priced at 80 GBP and the rate is 1 GBP = 1.27 USD. Multiply: 80 × 1.27 = 101.60 USD.
Going the other way, 500 USD at 1 USD = 129 KES gives 500 × 129 = 64,500 Kenyan shillings.
Converting between two non-dollar currencies
Most rate sources quote everything against one base currency, usually the US dollar. To convert euros to pounds, first turn euros into dollars (divide by the EUR rate), then dollars into pounds (multiply by the GBP rate). The Currency Converter does this step for you automatically.
Why you get a worse rate than you see
The rate shown on converters and news sites is the mid-market rate — halfway between what banks buy and sell at. When you exchange money, providers add a margin:
- Airport exchange counters often add 5–10%
- Banks and cards commonly add 1–3%, plus fixed fees
- Some transfer services charge close to the mid-market rate but add a flat fee
- Watch out for 'pay in your own currency' at card terminals — it usually costs more
Why rates change
Rates move every day with interest rates, inflation, trade and news. For everyday budgeting a daily rate is accurate enough, but for large transfers check the live quote from your provider right before you send. Our converter refreshes its reference rates once a day and is for information, not trading.
Try it yourself
Put this guide into practice with our free Currency Converter — no sign-up, no download.
Open the Currency Converter