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.)

  1. How do I find out my bank's bid-ask spread for currency conversions?

    Learn how to find your bank's bid-ask spreads for currency conversions, and understand why you should consider alternative ... Read Answer >>
  2. What is a currency converter and how do I use one?

    A currency converter is a calculator that converts the value or quantity of one currency into the relative values or quantities ... Read Answer >>
  3. What is the value of one pip and why are they different between currency pairs?

    In forex markets, currency trading is done on some of the world's most powerful currencies. The major currencies traded are ... Read Answer >>
  4. What types of companies benefit from reporting results utilizing constant currencies ...

    Understand constant currency figures, and explore some of the reasons why a company is likely to benefit from reporting using ... Read Answer >>
  5. What are the pros and cons of online checking accounts?

    Learn about the ways an online checking account can save you time and money, but understand the drawbacks before signing ... Read Answer >>
Related Articles
  1. Trading

    Here's How You Calculate An Exchange Rate

    Struggling to get a grasp on exchange rates? Here's what you need to know.
  2. Personal Finance

    The Worst Place to Exchange Currency

    Exchanging currency is a necessary part of traveling, but not all currency exchanges are created equal.
  3. Trading

    Understanding The Spread in Retail Currency Exchange Rates

    Understanding how exchange rates are calculated and shopping around for the best rates may mitigate the effect of wide spreads in the retail forex market.
  4. Trading

    How To Lock In An Exchange Rate

    Currency risk can be effectively hedged by locking in an exchange rate through the use of currency futures, forwards, options, or exchange-traded funds.
  5. Personal Finance

    Best Ways to Exchange Currency

    How to avoid fees and get the best deal for your dollar.
  6. Personal Finance

    The Pros And Cons Of Internet Banks

    Learn how internet banking services stack up against those of their brick-and-mortar peers.
  7. Trading

    Understand the Indirect Effects of Exchange Rates

    Exchange rates have a tremendous influence on the economy. Exchange rates can indirectly affect many of the most important aspects of our lives.
  8. Investing

    How To Calculate An Exchange Rate

    An exchange rate is how much it costs to exchange one currency for another.
  9. Personal Finance

    Online Banks: Lower Costs And Little Sacrifice

    For many, online banking has become a day-to-day routine. Still, there are some holdouts who refuse to accept the method.
  1. Universal Currency Converter

    A program that allows for the quick conversion of currencies ...
  2. Online Currency Exchange

    An online system for exchanging one country's currency for another. ...
  3. Online Banking

    The performance of banking activities via the Internet. Online ...
  4. International Currency Exchange Rate

    The rate at which two currencies in the market can be exchanged. ...
  5. Currency

    Currency is a generally accepted form of money, including coins ...
  6. Cross Currency

    A pair of currencies traded in forex that does not include the ...
Hot Definitions
  1. Assets Under Management - AUM

    The market value of assets that an investment company manages on behalf of investors. Assets under management (AUM) is looked ...
  2. Subprime Auto Loan

    A type of auto loan approved for people with substandard credit scores or limited credit histories. There is no official ...
  3. Racketeering

    A fraudulent service built to serve a problem that wouldn't otherwise exist without the influence of the enterprise offering ...
  4. Federal Debt

    The total amount of money that the United States federal government owes to creditors. The government's creditors include ...
  5. Passive Management

    A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. ...
  6. Series 7

    A general securities registered representative license administered by the Financial Industry Regulatory Authority (FINRA) ...
Trading Center