Exchange Rate
Quick Answer
An exchange rate is the price of one currency expressed in terms of another currency, determining how much of one currency you can get for another.
Definition
An exchange rate is the price of one currency expressed in terms of another currency, determining how much of one currency you can get for another.
Explanation
Exchange rates fluctuate constantly based on supply and demand in the global foreign exchange market. Factors influencing rates include interest rates, inflation, political stability, trade balances, and market speculation. Rates are quoted in pairs — the base currency and the quote currency — and change in real time during market hours.
When sending money internationally, the exchange rate you see may differ from the rate locked in at the time of transfer. Banks and money transfer services add a markup to the mid-market rate, which is their profit margin. Comparing rates across providers can save significant amounts, especially on larger transfers. Some services advertise 'zero fees' but compensate with wider exchange rate margins.
Exchange rates can be quoted as 'buy' and 'sell' rates. The difference between these two rates (the spread) represents the provider's profit. Mid-market rates are the true exchange rates you see on Google or XE, but you typically can't get these exact rates from transfer providers.
Example
If the EUR/USD exchange rate is 1.08, this means 1 euro buys 1.08 US dollars. Sending €1,000 at this rate would yield $1,080, but a transfer service might offer 1.07, netting only $1,070.