Exchange Rate
The value of one currency in terms of another—how many euros you get for a dollar, for example.
What You Need to Know
Exchange rates determine how much foreign currency you get when you trade your money. They fluctuate constantly based on economic conditions, interest rates, and global events.
How It Works:
- Exchange rate: 1 USD = 0.92 EUR
- You have $1,000
- You get €920 (minus fees)
What Drives Exchange Rates:
- Interest rates (higher rates attract foreign investment, strengthening currency)
- Economic growth (strong economy = strong currency)
- Political stability (instability weakens currency)
- Trade balance (more exports = stronger currency)
Example Timeline:
- 2000: 1 USD = 1.07 EUR (strong dollar)
- 2008: 1 USD = 0.68 EUR (weak dollar after financial crisis)
- 2024: 1 USD = 0.92 EUR (moderate strength)
Why It Matters:
- Traveling abroad: Strong dollar = cheaper vacations
- Importing goods: Weak dollar = expensive products
- Investments: Currency risk can make/lose you money even if the investment gains value
Hidden Costs: Banks and credit cards charge 1-3% on top of the official rate. Use cards with no foreign transaction fees (like Chase Sapphire) or exchange services like Wise for better rates.
The Bottom Line: Exchange rates are constantly changing. A 10% swing can turn a good deal into a bad one, so timing and fees matter when dealing with foreign currencies.
Sources & References
This information is sourced from authoritative government and academic institutions:
- federalreserve.gov
https://www.federalreserve.gov/releases/h10/current/
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Related Terms in Economic & Inflation
Cost of Living Adjustment (COLA)
Regional variations in expenses that affect how much it costs to raise a child, with urban areas typically 20-50% more expensive than rural areas.
Dynamic Currency Conversion (DCC)
When merchants abroad offer to charge your card in your home currency instead of local currency, usually with hidden markup of 3-7%.
Foreign Transaction Fee
A fee charged by credit card companies for transactions in foreign currencies, typically 1-3% of the purchase amount.
PPP (Purchasing Power Parity)
An economic measure that compares currencies by how much goods and services they can buy in different countries.