Foreign Currency Converter: How to Calculate Foreign Exchange

Planning a foreign trip? Or are you looking for international investment? In either case, you need to monitor foreign exchange rates. That’s critical for getting the best end of the deal.

What are exchange rates? How do they matter? Let’s answer your questions one at a time. We’ll also explore how to compute foreign money exchange both automatically and manually. Read on, as this is your crash course on all things foreign exchange.    

What are exchange rates?

Exchange rates are the costs involved in exchanging a currency for another one. Suppose you buy US Dollars with Indian Rupees. Here, the exchange rate is the total Rupees you spend to buy a Dollar. You can call it the value of a given currency for another currency.

Exchange rates are subject to the country’s economy and policy initiatives, the balance of payment, interest rates, inflation, FDI, and other vital factors. That makes exchange rates a volatile commodity. As currencies actively change hands 24/7/365, the exchange rates rise and fall.

Since exchange rates fluctuate at all times, monitoring them becomes essential. If a currency is converted with low prices, you end up with low returns. That implies your buying power in an already more costly country is compromised. International investors are most affected, as the money involved is high. Even a minor difference in exchange rates adds up to hefty losses.

Types of exchange rates:

Exchange rates come in all shapes and sizes. Here’s your rundown:

• Fixed-Rate: True to the name, they are fixed and hedge you against fluctuations. Herein, the currency derives its value from a stable currency or asset.
• Floating Rates: Currency value is subject to demand and supply and, hence, changes rapidly. Central banks often sell or buy currencies to restrict extreme fluctuations.
• Forward Rate: The rates depend on a forward contract between two parties in which the sale/purchase of currencies is stipulated at a given rate and at a given time in the future.
• Spot Rate: Want to execute the currency conversion with little statistical analysis right now? Then, the spot rate is what you get. It’s the currently applicable exchange rate.
• Dual Rate: As the name suggests, Dual exchange rates comprise two values for a given currency, one for domestic and foreign transactions.

Calculating exchange rates manually:

If you can do some simple math, seeking the help of an automated foreign currency converter is not required. Just follow the following steps and compute the exchange rates the DIY way.

• Decide the total money you’ll need to carry to a foreign location.
• Search for the exchange rates of the currency you wish to purchase.
• Apply the formula, M = E X T, to get foreign exchange rates.

In this formula:

• M stands for the money you wish to convert.
• E denotes the applicable exchange rate.
• T is the total money you get post-conversion.

For example, if M = 10000 INR and E = 0.014, your exchanged value will be 10000 X 0.014 = 1400 USD. Feel free to apply the ‘Backward’ method to determine your currency needs.

Calculating exchange rates via web tools:

Forex converter is a web tool designed to efficiently, quickly, and accurately perform exchange rate calculations. You can find this software at Forex dealers, banks, and specialty websites.

Foreign exchange converters are site-specific. However, the process is the same.

• Access an exchange converter updated with the latest conversion rates.
• Choose currencies to be exchanged from the available options via a drop-down menu.
• Type in the amount you need to covert
• Select the commission rate if a separate column for the same is provided.
• Press the Convert menu, and your exchange rates will be instantly displayed.

Forex rates can also be computed through the Google search bar. Simply type in the conversions you wish to make on the search bar. Google will respond with the answer quickly. However, the results are not always accurate, as Google doesn’t track exchange rates in real time.

The bottom line:

The exchange rates quoted are inter-bank rates. However, banks and money changers apply variable rates to stay profitable for currency buying and selling. Plus, they charge a commission on each transaction. Ichoosing the money changer wisely makes sense for better returns.