Currency conversion seems simple on the surface — but the rate you see, the rate you get, and the rate a bank charges are often three different numbers. Here's why.
What Sets Exchange Rates
Exchange rates are primarily determined by supply and demand in the global currency (forex) market — influenced by interest rates, inflation, trade balances, political stability, and market speculation. Central banks can influence but rarely fully control these rates in a floating exchange rate system.
The Mid-Market Rate vs What You Actually Get
The rate you see on Google or in the news is usually the mid-market rate — the midpoint between buy and sell prices in the wholesale forex market. Banks and exchange services add a margin on top (often 2-5%, sometimes more), meaning the rate you're actually offered is always somewhat worse than the headline rate.
Why Rates Fluctuate Constantly
- Interest rate changes by central banks (higher rates often attract foreign investment, strengthening a currency)
- Economic data releases (GDP, employment, inflation reports)
- Political events and policy uncertainty
- Trade balance shifts between countries
Practical Tips When Converting Money
- Compare the rate offered against the current mid-market rate to see the real margin being charged
- Airport currency exchanges almost always offer the worst rates due to convenience premium
- For larger amounts, even a 1% difference in rate can mean a meaningful sum of money
Convert Currencies Instantly
Use our Currency Converter to quickly check conversion values across major world currencies.