How currency exchange rates work

Updated 1 November 2026 · 7 minute read

Every price you see in another currency comes from one of two places: a wholesale market rate that banks trade with each other, or a retail rate that a bank, card network or money changer offers you. The gap between them is where exchange costs live. This guide explains the difference, shows how to convert in both directions, and describes what our currency converter does — and what it deliberately does not do.

Reading a currency pair

Rates are quoted as a pair, for example EUR/USD = 1.0850. The first currency (EUR) is the base and the second (USD) is the quote. The number means: one euro buys 1.0850 US dollars.

amount in quote currency = amount in base currency × rate

To go the other way, divide by the rate instead of multiplying:

amount in base currency = amount in quote currency ÷ rate

There is no separate “reverse rate” to look up. EUR/USD of 1.0850 gives USD/EUR of 1 ÷ 1.0850 = 0.9217, up to rounding. Doing both steps should return your starting number.

The mid-market rate

The mid-market rate is the midpoint between the price at which dealers will buy a currency and the price at which they will sell it, in large wholesale transactions. Search results and currency converter apps usually show this number because it is the fairest single figure available: it has no retail margin baked in.

It is also a number you cannot actually get. Nobody hands you cash at the exact midpoint. Banks pay for settlement, compliance, cash handling and profit, so their buy and sell prices sit on either side of the mid-market rate. The distance between the two is the spread.

Where the spread shows up

At a bank or money changer. The board shows a buy rate and a sell rate. The difference is often 1–4% for major currencies and more for thin ones.
On a card abroad. The network converts at a wholesale rate close to the mid-market, then the issuing bank usually adds a foreign transaction fee of about 1–3%.
In a remittance app. The fee may be low or zero while the rate is a little worse than mid-market, or the reverse. What matters is the total: money sent plus fees, compared with money received.
At an airport kiosk. Convenience is paid for. Spreads of 5–10% are common, occasionally more.

A simple test for any quote: divide the offered rate by the mid-market rate. If the result is 0.97, the quote is about 3% away from mid-market, before any separate fee.

Converting through a third currency

Most feeds publish rates against one base, usually the US dollar. To convert between, say, Pakistani rupees and euros, the calculator converts PKR to USD, then USD to EUR. That is triangulation, and it is how the wholesale market works too.

Two small effects follow. First, rounding at each step can shift the last decimal. Second, if a feed quotes a currency in a different base, converting through USD keeps the arithmetic consistent across all pairs instead of mixing sources.

Worked examples

Suppose the mid-market rate is 1 USD = 278.50 PKR.

You have	Calculation	Result
1,000 USD	1,000 × 278.50	278,500 PKR
50,000 PKR	50,000 ÷ 278.50	179.53 USD
1,000 USD with a 2% card fee	278,500 × 0.98	272,930 PKR equivalent
1,000 USD at an airport at 265	1,000 × 265	265,000 PKR — 4.8% below mid-market

The last two rows are the same currency, the same day and the same amount. The difference is entirely cost, not rate movement.

Why two websites disagree

Even among reference feeds, small differences are normal:

Timing. One feed refreshes at 16:00 CET on working days; another updates a few minutes later. Currency markets move continuously, so a different timestamp gives a different number.
Weekends and holidays. Most reference rates are frozen from the last working day. A Saturday rate is Friday’s close.
Source. Central-bank reference rates, commercial data vendors and open aggregators can each quote slightly different wholesale figures.
Rounding. Feeds publish four to six significant digits; converters round for display.

A difference of a few hundredths of a percent between two converters is expected. A difference of several percent means one of them is quoting a retail rate, not a reference rate.

What our converter does

The tool fetches a public daily reference feed, caches the result in your browser for the session, and converts through the US dollar. It works offline with the last good rates if the network is unavailable, and shows the date of the rates it is using. Your amounts never leave your device: the only network request is for the rate table itself, and no amount you type is sent anywhere.

One honest limitation: the rates are indicative mid-market rates, not a quote you can transact at. The rate your bank or card gives you will differ by its spread and fees. Treat the converter as a planning tool — for a budget, an invoice in a foreign currency, or checking whether an offer is reasonable — not as a promise of the amount that will land in an account.

Practical habits

Compare totals, not fees. Convert the amount you are sending and subtract what actually arrives. A “zero fee” transfer can still be the most expensive one.
Know your card’s foreign fee. It is usually in the account terms, and it decides whether paying abroad by card beats withdrawing cash.
Do not chase the last decimal. Daily moves of 0.5% are routine. For a one-off payment, an hour of waiting rarely changes anything that matters.
Record the rate you used. For invoices and accounts, note the rate and its date so the figure can be explained later.

This guide explains how exchange rates are quoted. It is general information, not financial advice. Exchange rates change continuously and retail quotes include costs that a mid-market rate does not; confirm the final amount with your bank, card issuer or remittance provider before sending money.

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