How do I convert dollars to pounds, euros to yen, or francs to dollars, etc.?

By Selwyn Gishen AAA
A:

Currency can be converted using an online currency exchange or it can be converted manually. To use either method, you must first look up the exchange rate using an online exchange rate calculator or by contacting your bank. Be aware that the rates charged by your bank may differ from those you see online because banks earn small profits on exchanges, whereas online rates are the same as those quoted between banks.

In addition, it is important to note that the exchange rate you get when trading one currency against another probably will differ from the rate you will obtain during the actual conversion of one currency into another at a local bank. Traders can access the tight bid-ask spreads that are posted by banks amongst each other, but visitors to foreign countries who require local currency will pay slightly higher prices for the same currency. For example, an online EUR/USD (euro against the dollar) may appear as 1.5560 - 1.5563, which means banks are selling to each other at 1.5563, but are buying from each other at 1.5560. The spread (or difference) of three pips (points) is the profit banks realize for facilitating this transaction.

Let's conduct a dollar-to-euro conversion, for example. First, look up the exchange rate online, which will be quoted as the amount $1 can buy in euros or as the amount one euro will buy in dollars. If $1 buys 0.6250 euros, then $10,000 would equal 6,250 euros (because 10,000 x 0.6250 = 6,250). If the quote states that one euro buys $1.60, then $10,000 still would equal 6,250 euros (because 10,000/1.6000 = 6,250).

(For more on this topic, see The Impact of Currency Conversions.)

RELATED FAQS

  1. Why doesn't England use the euro?

    Understand why the United Kingdom has opted to not join the eurozone in adopting the euro over the pound sterling as its ...
  2. How can I invest in a foreign exchange market?

    The foreign exchange market, also called the currency market or forex (FX), is the world's largest financial market, accounting ...
  3. What is the correlation between American stock prices and the value of the U.S. dollar?

    The correlation between any two variables (or sets of variables) summarizes a relationship, whether or not there is any real-world ...
  4. What do the terms weak dollar and strong dollar mean?

    The two terms, weak dollar and strong dollar, are generalizations used in the foreign exchange market to describe the relative ...
RELATED TERMS
  1. ICE LIBOR

    See LIBOR
  2. WM/Reuters Benchmark Rates

    Spot and forward foreign exchange rates that are used as standard ...
  3. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  4. Open Position Ratio

    The percentage of open positions held for major currency pairs ...
  5. Indirect Quote

    A currency quotation in the foreign exchange markets that expresses ...
  6. Competitive Devaluation

    A series of sudden currency depreciations that nations may resort ...
comments powered by Disqus
Related Articles
  1. Forex Exotic Currency Trading: Risks ...
    Fundamental Analysis

    Forex Exotic Currency Trading: Risks ...

  2. Understanding The Spread in Retail Currency ...
    Forex Education

    Understanding The Spread in Retail Currency ...

  3. How To Calculate An Exchange Rate
    Forex Fundamentals

    How To Calculate An Exchange Rate

  4. What Would Have To Happen For The Iraqi ...
    Forex Fundamentals

    What Would Have To Happen For The Iraqi ...

  5. Is the Iraqi Dinar Investment a Wise ...
    Forex Fundamentals

    Is the Iraqi Dinar Investment a Wise ...

Trading Center