How To Convert Currency

An exchange rate is the price of one currency in terms of another. Quoting it as a single number always implies a direction: 0.89 euros per dollar is a different statement from 1.12 dollars per euro, even though they describe the same market.

Conversion itself is trivial once the rate is known. Multiply the amount by the number of target units that one source unit buys. Everything difficult about currency conversion is in choosing the rate rather than in the arithmetic.

Rates are conventionally quoted against a base currency, most often the US dollar. Storing every currency as units per dollar reduces the whole problem to one multiplication and one division, because the dollar cancels out in the middle.

The inverse rate is the reciprocal of the rate. If one dollar buys 0.892438 euros, then one euro buys 1 divided by 0.892438, which is 1.12052 dollars. The two figures always multiply to exactly one, which makes the inverse a useful check.

The mid-market rate, also called the interbank rate, is the midpoint between the buy and sell prices in the wholesale market. It is the rate you see on a news site, and it is the rate this calculator uses as its reference.

The rate you actually get will be worse. Banks and card networks add a spread, and exchange bureaux and airport kiosks add a much larger one. A spread of three percent on a thousand dollars costs thirty dollars, which is often more than a visible commission.

Because of that spread, the honest way to use any converter is to enter your own rate. If your card statement shows the rate you were charged, putting that number in gives a result that matches your account exactly rather than approximately.

A rate quoted today applies to a trade today. Settlement may take two business days, and the rate can move in between, which is why businesses that invoice across borders hedge or lock a rate forward.

Currency pairs are quoted to different numbers of decimal places depending on the size of the rate. Pairs near parity are quoted to four or five decimals, while a rate like the yen per dollar is quoted to two or three.

The reference rates here are a snapshot rather than a live feed, because a static site cannot query a market continuously. They are accurate enough to size a purchase or check an order of magnitude, and the override field covers everything that needs more.

Inflation is the reason a currency conversion is not a purchasing-power comparison. Converting at today's rate tells you what an amount buys abroad today, not whether it is a good price relative to what the same money buys at home.

Fees sit on top of the rate. A card may charge a foreign transaction fee of three percent in addition to the spread, and a transfer service may charge a flat fee plus a percentage. Compare the total landed cost rather than the headline rate.

The calculator takes an amount, a source currency and a target currency, and shows the converted amount, the rate used, its inverse, and the value in US dollars. Setting the override field to any non-zero number replaces the reference rate with your own.