1. How Exchange Rates Work
An exchange rate is the price of one currency expressed in terms of another. For example: 1 USD = 84 INR means one US dollar can be exchanged for 84 Indian Rupees.
💡 Key Concept:
Exchange rates fluctuate constantly (multiple times per second) based on supply and demand. When we say "USD/INR is 84," that's the rate at that precise moment. A second later, it might be 83.98 or 84.02.
Quoting Convention
When you see "USD/INR = 84":
- Base Currency (first): USD (US Dollar). This is always "1 unit"
- Quote Currency (second): INR (Indian Rupee). This is the amount you get
- Meaning: 1 USD = 84 INR
Note: The inverse (INR/USD) would be 1÷84 = 0.0119 USD per rupee (confusing, which is why we usually quote USD/INR instead).
What Causes Exchange Rates to Change?
- Interest Rates: Higher interest rates in a country make its currency more attractive (investors want higher returns)
- Inflation: Higher inflation weakens a currency (less purchasing power)
- Economic Data: GDP growth, unemployment, trade reports can cause fluctuations
- Geopolitical Events: Wars, elections, policy changes affect investor confidence
- Supply & Demand: More buyers = currency strengthens. More sellers = currency weakens
2. The Forex (Currency) Market
The Forex Market (FX) is where currencies are traded globally. It's the largest financial market in the world.
Market Facts
- Daily Trading Volume: ~$7.5 trillion per day (as of 2024)
- Operating Hours: 24/5 (opens Monday Asia, closes Friday US)
- Participants: Central banks, investment firms, currency traders, businesses, individuals
- Decentralized: No single physical location. Trading happens globally via electronic communication networks
Major Currency Pairs (Global Trading)
EUR/USD - Euro vs US Dollar (most traded)
GBP/USD - British Pound vs US Dollar
USD/JPY - US Dollar vs Japanese Yen
USD/CHF - US Dollar vs Swiss Frank
USD/INR - US Dollar vs Indian Rupee
AUD/USD - Australian Dollar vs US Dollar
USD appears in ~90% of forex trades. This is why exchange rates are often quoted as "USD/XXX" (USD against other currencies).
3. How to Convert Currency
Simple Mathematics
If you want to convert USD to INR:
INR Amount = USD Amount × Exchange Rate
Example: Convert $100 USD to INR at rate 84
100 × 84 = 8,400 INR
Reverse Conversion (INR to USD)
USD Amount = INR Amount ÷ Exchange Rate
Example: Convert 8,400 INR to USD at rate 84
8,400 ÷ 84 = $100 USD
Three-Currency Conversion
Want to convert EUR to INR? Use USD as intermediary currency:
Step 1: Convert EUR to USD using EUR/USD rate
Step 2: Convert USD to INR using USD/INR rate
Most converters do this automatically in the background.
4. Hidden Fees, Spreads & Markups
This is where currency converters make money. They don't charge you directly; they profit by giving you a worse exchange rate.
Mid-Market Rate vs Offered Rate
Mid-Market Rate (Real Rate)
The true exchange rate between two currencies. Used by Reuters, XE.com. NOT what you get as a customer.
Example: USD/INR mid-market = 84.00
Offered Rate (Your Rate)
What banks, payment apps, and currency services give you. Always worse than mid-market (they need to profit).
Example: Bank offers USD/INR = 83.50 (they keep 0.50)
The Spread (Markup)
Spread = Difference between mid-market rate and offered rate.
| Provider | Mid-Market | Offered | Spread |
|---|---|---|---|
| XE.com (Reference) | 84.00 | 84.00 | 0% (reference only) |
| Wise (Best online) | 84.00 | 83.90 | 0.12% (excellent) |
| PayPal | 84.00 | 81.50 | 2.97% (poor) |
| Banks (HDFC, ICICI) | 84.00 | 81.20 | 3.33% (expensive) |
Translation: Converting $1,000 USD to INR
Bank (3.33% spread): 80,800 INR
Wise (0.12% spread): 83,900 INR
Difference: Bank costs you 3,100 INR extra!
5. International Money Transfers
Options Comparison
✅ Wise (Best for most people)
- • Mid-market rates (0.3-1% spread)
- • Fast (1-2 days to India)
- • Small amounts OK
- • $4.12 fee typical
✅ SWIFT Banks
- • Traditional & secure
- • Slow (3-5 days)
- • High fees ($15-50)
- • Poor exchange rates
❌ Remittance Services (MoneyGram, Western Union)
- • Expensive (3-5% spread)
- • High fees ($5-20)
- • Useful for cash pickup only
6. How to Get the Best Exchange Rates
Pro Tips
- Use Wise or OFX for transfers: Smallest spreads (0.3-1%) vs banks (2-4%)
- Compare before transferring: Mid-market rates vary slightly between providers
- Avoid Airport Exchanges: Worst rates (5-10% spread). Use ATMs instead.
- Large amounts = better rates: Transferring $50,000? Negotiate with banks.
- Check transfer time: Sometimes slow = better rate. Choose your priority.
- Avoid PayPal/Google Pay for currency: Spreads are terrible (2-4%)
- Use credit card (when possible): Better rates than bank transfers, plus points
7. Real-Time vs Delayed Rates
✅ Real-Time Rates
Updated multiple times per second. Used by banks and professional traders. Most accurate.
Our currency converter uses real-time rates from live forex feeds.
⚠️ Delayed Rates (15-20 minute lag)
Older rates from 15-20 minutes ago. Free providers use these to save on data costs.
At volatile times (economic news), delays can cause 0.5-2% differences.
8. Currency Converter Tools Comparison
| Tool | Real-Time? | Free? | Best For |
|---|---|---|---|
| ROAS Converter | ✅ Yes | ✅ 100% Free | Quick conversions (Recommended) |
| XE.com | ✅ Yes | ✅ Free | Reference rates, learning |
| Google Finance | ✅ Yes | ✅ Free | Simple conversions |
| Wise | ✅ Yes | ✅ Free converter | Actual transfers (small fee) |
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