It is often assumed that calculating exchange rates is as simple as performing basic mathematics. But it isn’t so. Though it looks simple but only at the surface, one has to dig deep especially when trying to understand the financial statement of foreign stock and this can make a huge difference for people (read international investors) who are planning investments. It makes it extremely necessary to calculate the exchange rate.
For instance, you would want to convert $100 U.S. dollars into Euros. The exchange rate is 1.12. So, divide $100 by 1.12, and the result is the number of euros. Similarly to convert U.S. dollars, you need to reverse the process and multiply the number of euros by 1.12 to know the number of U.S. dollars.
How to remember this?
The best method to remember this is to multiply from left to right and divide from right to left. The final currency is the result of the calculation you made. The example cited above used a similar formula. You can gain the no of euros by dividing from right to left followed by multiplying from left to right to know the number of dollars.
Other ways to calculate exchange rates:
Look for an updated conversion rate online
With too many websites, it is but difficult to pick one. Here is what you should go about it. But be assured that most of the websites update their sites with the latest conversion rates for various currencies across the globe. It is good to check a few websites to ascertain the exchange rate. You should follow the next step to measure the currency rate.
Get in touch with the Government for the right exchange rate
You can consult the government agencies to receive updated information about the exchange rates. It can be used for the currency you want to learn about.
Google has the answer
Tell Google about the conversion you want to know, and it will tell you the solution with the currency converter.
Take an example. You want to know how much $1000 value in Euros. Enter 1000 dollars to euros in the Google search bar, and you will have your answer.
But, remember. The finance converter is not updated as frequently as one would expect it to. Therefore, it is not too reliable. But as for having a rough estimate, you can rely on it.
But, for this, you must understand how to read the currency rates. Most of the people find it confusing.
How to read an exchange rate?
Let’s understand this with an example:
The USD/CAD exchange rate is 1.34 which implies 1.0950 Canadian dollars for $1 US dollar. The currency listed first represents 1 unit of that currency. The exchange rate depicts the amount of second currency required for buying 1 unit of the currency displayed first.
In this way, you will know how many U.S. dollars are required for Canadian dollars. You can use the formula to calculate the result: 1/exchange rate.
Here, 1/1.34 equals 0.75 dollars to have one Canadian dollar. The cost can be seen by the CAD/USD pair and vice versa at the Toronto Exchange Rate.
The catch you need to understand now:
When you approach a bank to convert a particular currency, you will receive the market price. The banks will markup the cost to reap some benefit akin to payment services and credit card providers such as PayPal in the course of the currency conversion process.
These banks compensate themselves for the service. The bank provides you cash; traders won’t. So, to get some money, processing fees or wire fee is applied on to an account known as forex account when physical money is required.
One can also look for an exchange rate anywhere near the market exchange rate.
Shopping around is a good option. Think about it. It can save money with smaller markup similar to the market exchange rate.
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