Currency Converter Guide: Exchange Rates Explained

Currency exchange rates are determined by supply and demand in the global foreign exchange (Forex) market — the largest financial market in the world, with over $7 trillion in daily trading volume. The 'mid-market rate' (also called the interbank rate or spot rate) is the midpoint between buy and sell prices, and is the rate you typically see quoted in news and currency converters.

Interest rate differentials between countries are the primary long-term driver of exchange rates. When a country raises interest rates, its currency typically strengthens because higher rates attract foreign investment. Federal Reserve decisions move the US dollar significantly relative to other currencies.

Short-term rate movements are driven by inflation data, GDP reports, political events, trade balances, and market sentiment. In times of global uncertainty, 'safe haven' currencies like the US dollar, Swiss franc, and Japanese yen typically strengthen as investors flee to perceived safety.

Banks, currency exchange booths, and many money transfer services add a markup to the mid-market rate — their profit on the conversion. A bank might quote 1 USD = 0.90 EUR when the mid-market rate is 0.94. On a $1,000 conversion, that markup costs you $40.

Credit cards with no foreign transaction fees often use rates close to the interbank rate. Cards with foreign transaction fees (typically 1–3%) are better than currency booths but worse than no-fee cards. Dynamic currency conversion — when a foreign merchant offers to charge you in your home currency — almost always uses a terrible rate. Always choose to pay in local currency.

For larger money transfers (sending money abroad), specialized services like Wise, Revolut, and OFX typically offer mid-market rates with small transparent fees — dramatically better than traditional bank wire transfers, which can charge $25–$50 flat plus a 3–5% markup.

ATMs abroad: withdrawing from a local ATM in the foreign currency usually gives you a rate close to the interbank rate — but your home bank may charge foreign ATM fees ($2–$5 per withdrawal) and a foreign transaction fee (1–3%). Use a travel-friendly account (Charles Schwab High Yield Investor Checking reimburses all ATM fees globally) to minimize costs.

Currency exchange planning: check rates before you travel using our converter. If your destination currency has recently weakened significantly, consider converting more now; if it's at a historical high, converting the minimum upfront and using no-fee cards may serve you better.

For online shopping from international retailers, be aware that the displayed price may not match your actual charge due to exchange rate and credit card fee differences. Use our currency converter to calculate the true cost in your home currency before completing your purchase.