How to Calculate Exchange Rates

If youre going to get money from a relative overseas, it pays to know how much the money sent to you costs in your countrys currency. Exchange rates are good indicators if a countrys economy is doing well; many economists and investors use exchange rates to determine the strength of a market in a country. Heres how you can calculate exchange rates by yourself:

How Exchange Rates Work

Exchange rates is the relationship between two different currencies all over the world. Exchange rates are also known as fx or forex. While there are many ways to determine economic progress, exchange rates can determine the strength of a particular currency in terms of the currency your country is using. The value of a currency is determined by the foreign exchange market, where billions of dollars worth of currency and money get traded every day.

There are two kinds of exchange rates:

• Spot exchange is the value of a currency in terms of the actual rate of exchange at a given time.
• Forward exchange is the value of a currency quoted and traded at a certain time, but will be exchanged at a later date. Some rules in forward exchange may adjust the value of the currency for time and inflation, although most rules would usually trade the money as it was quoted on the floor.

Online Exchange Rate Calculators

Before the Internet, people usually relied on newspapers to determine how much a foreign currency is worth in terms of local currency. Currency exchange rates are usually listed on a long table, with one unit of the currency rated in terms of the dollar. While the exchange rates are accurate, you still need to calculate the value of your money manually.

Online exchange rate calculators, like XE.com or Web applications on the websites of some banks, make it easier for people to determine how much foreign currency is worth in local currency. Simply key in the value of the foreign currency, set the currencies, and hit the Go or Convert button to see how much the currency is worth.

Remember that currency values fluctuate over time, and theres no set foreign exchange rate for each country. Its best to have your money converted when the exchange rates are high, so that you can make the most of every dollar and cent foreign currency is worth.