What is CURRENCY EXCHANGE?
Maybe you've traveled to Mexico or Canada, and exchanged your American dollars for pesos or Canadian dollars. Or, perhaps you've traveled from England to Japan and exchanged your English pounds for yen. If so, you have experienced exchange rates in action. But, do you understand how they work?
You've probably heard the financial reporter on the nightly news say something like, "The dollar fell against the yen today." But, do you know what that means?In this article, we'll tell you what exchange rates are and explain some of the factors that can affect the value of currency in countries around the world.
The rate of a country’s own currency is usually set at 100.
The foreign-exchange rate is the price, in your country’s currency, that you will have to pay for 100 of the foreign currency.
For example, if you are in a bank somewhere in United States and you want to exchange some dollars to euro, and you are told that the foreign-exchange rate of euro is 137.51, it means that it will cost you $137.51 to buy €100.
The exchange formula
Henry from Washington D.C. has returned from his trip to Europe. He has 81 € that he wants to exchange back to US-dollars. He goes into a bank in Washington.
At the time being the exchange rate of euro is 137.51.
How many US-dollars will he get, if we pretend that there is no exchange fee?
(The exchange rate of US-dollars is 100)
So Henry gets $111.38