How Currency Exchange Rates Work
6 min read · Updated September 26, 2026 · by Thomas M, Registered Investment Adviser (South Carolina)
An exchange rate is a price: how much of one currency you pay for another. Understanding how rates are quoted lets you convert anything by hand, compare providers and spot hidden costs. This guide walks through the arithmetic.
Reading a quote
A quote like EUR/USD = 1.10 means 1 euro costs 1.10 US dollars. The first currency is the base and the second is the quote. To go the other way, divide: 1 ÷ 1.10 = 0.909 euros per dollar.
Converting by hand
Multiply by the rate to go from base to quote, and divide to go back. With 1 USD = 0.90 EUR: 100 USD × 0.90 = 90 EUR, and 90 EUR ÷ 0.90 = 100 USD.
Cross rates
Most currencies are quoted against a base such as the dollar or euro. To convert between two others, go through the base: amount ÷ (base-to-source rate) × (base-to-target rate). If 1 USD = 150 JPY and 1 USD = 0.75 GBP, then 150 JPY = 1 USD = 0.75 GBP, so 1 JPY = 0.005 GBP.
Reference rate vs the rate you get
The currency converter uses mid-market reference rates from the European Central Bank. Banks, cards and kiosks quote a buy rate and a sell rate on either side of this midpoint; the difference plus any fee is their margin. If the reference rate is 0.90 and a provider offers 0.84, you lose about 6.7% before fees.
Practice questions
Test yourself, then tap to check. Answers are calculated by the tools linked below.
- What will a $250 weekly food bill be after 15 years of 3.5% inflation?
Show answer
What costs $250.00 today will cost in 15 years: $418.84
- Add 20% VAT to £450.
Show answer
Price including tax (gross): £540.00 · VAT to add: £90.00
Frequently asked questions
How do I convert one currency to another?
Multiply by the exchange rate (base to quote) or divide by it (quote to base). The converter does this for 30 currencies.
Why is my bank’s rate worse than Google or ECB rates?
Those are mid-market rates. Providers add a spread and sometimes a fee.
What is a cross rate?
A rate between two currencies derived through a common third currency, like converting yen to pounds through the dollar.
How often do rates change?
Constantly in the market. The ECB publishes reference rates once each working day.
Try it yourself
Currency ConverterConvert between 30 major currencies with European Central Bank reference rates, updated every working day.
Inflation CalculatorSee what money will be worth after inflation, what things will cost later, or the average inflation implied by two prices.VAT CalculatorAdd VAT to a price, remove VAT from a total or find the VAT rate — with UK 20%, 5% and 0% presets.Keep learning
How to Calculate Inflation5 min read
How to Convert Units6 min readHow to Calculate Percentages7 min readReviewed by Thomas M, Registered Investment Adviser (South Carolina), who launched his own financial advisory firm in 2010. Spot a mistake? Tell us. See our editorial policy. Finance content is educational and not financial advice; see the disclaimer.