How to Calculate Exchange Rate
What is Exchange Rate?
A currency exchange rate calculator converts amounts between currencies and applies a spread or fee to show the true cost of exchanging money versus the mid-market rate.
Formula
Amount_target = Amount_source × (rate_source / rate_target); Direct rate: 1 unit source currency = X units target
- S
- Source currency amount (currency)
- r
- Exchange rate (ratio)
- T
- Target currency amount (currency)
Step-by-Step Guide
- 1Mid-market rate: midpoint between buy and sell rates
- 2Exchange amount = Base amount × Exchange rate
- 3Banks and bureaux typically add 2–5% margin above mid-market
- 4Travel cards and Wise often offer near mid-market rates
Worked Examples
Input
£500 to EUR, mid-market 1.17, bank spread 2%
Result
Mid-market: €585; With 2% spread: €573.30 (cost of spread: €11.70)
Frequently Asked Questions
Why do exchange rates change?
Supply/demand for currencies, interest rates, inflation, economic growth, geopolitical events, central bank policy.
What's the difference between bid and ask rates?
Bid = rate banks buy currency (you sell). Ask = rate banks sell (you buy). Spread = profit margin.
Does timing matter when exchanging?
Absolutely. Currency moves daily/hourly. Poor timing costs 2-5% on international transfers. Lock rates when possible.