What an Exchange Rate Tells You
An exchange rate is the price of one currency expressed in terms of another. When you see EUR/USD = 1.08, it means one euro costs 1.08 US dollars. When you see GBP/JPY = 189.50, it means one British pound costs 189.50 Japanese yen.
The first currency in the pair is the base currency (what you are buying). The second is the quote currency (what you are paying with). The number tells you how much of the quote currency you need to buy one unit of the base currency.
Why Exchange Rates Change
Exchange rates float — they change continuously based on supply and demand in global currency markets. The main forces that move rates:
Interest rates. When a country's central bank raises interest rates, its currency tends to strengthen. Higher rates attract foreign investment (people buy the currency to invest in higher-yielding assets), increasing demand.
Inflation. A country with low inflation tends to see its currency appreciate. High inflation erodes purchasing power, making the currency less attractive.
Trade balances. Countries that export more than they import create demand for their currency (foreign buyers need it to pay for goods). This tends to strengthen the currency.
Political stability and economic performance. Stable, growing economies attract investment. Political uncertainty causes capital to flee, weakening the currency.
Market speculation. Traders buy and sell currencies based on expectations about future events. Expectations alone move rates, even before the events occur.
Bid, Ask, and the Spread
When you exchange currency, you encounter two rates:
Bid price — what the dealer will pay you for your currency (the lower number)
Ask price — what the dealer will charge you to buy currency (the higher number)
The difference is the spread — the dealer's profit margin. A spread of 2-3% is typical at airport currency exchanges. Online transfers through banks or services like Wise offer spreads well under 1%.
The "mid-market rate" (the one you see on Google or financial websites) is the midpoint between bid and ask. No one actually exchanges currency at the mid-market rate — it is a reference point.
Converting Between Currencies
To convert from base to quote currency: Multiply by the exchange rate.
100 EUR at EUR/USD 1.08 = 100 × 1.08 = $108 USD
To convert from quote to base currency: Divide by the exchange rate.
$108 USD at EUR/USD 1.08 = 108 ÷ 1.08 = €100 EUR
Cross rates. To convert between two currencies when you only have rates against a third currency (usually USD), use the cross rate. If EUR/USD = 1.08 and GBP/USD = 1.27, then EUR/GBP = 1.08 ÷ 1.27 = 0.8504.
How to Use the Toobits Currency Converter
Select your source and target currencies, enter the amount, and see the converted value instantly. The converter uses current exchange rates and supports all major world currencies. Use it for travel planning, international business, or quick reference. The calculation runs in your browser.