DEFINITION of 'Conversion Rate'

The ratio at which one currency can be exchanged for another. For example, a conversion rate for euros to dollars of 1.25 means that one euro can convert to 1.25 dollars. A high conversion rate between currencies means that one currency can "buy" more units of the other. If one euro can be converted into more than one U.S. dollar then the dollar has a lower value relative to the euro.

Also commonly referred to as the exchange rate.

BREAKING DOWN 'Conversion Rate'

The conversion rate depends on several factors, one of which is the interest rate set by the currency's issuing central bank compared to the interest rate set by the bank of the currency being converted into. Countries with high real interest rates typically attract investors from other countries and thus have an increased demand and higher value for their currency.

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