How To Calculate Exchange Rates


Exchange rates are something we all know about, but most of us have no idea how the figures are calculated and why we need them in our society. Surely it would be easier to have a universal currency for the whole world? Exchange rates detail how much it costs for one currency to be converted into another. The values are always changing, very much like the value of stocks or gold. The reason that the values are always changing is because of the value of each country and the state of their economy. So, for example, earlier in the year the UK left the EU. This decision was frowned upon by many, and subsequently, the value of the British pound dropped for a considerable time.

Today we are going to be talking about exchange rates and how you can calculate them to make sure you are getting the best deal.

To find exchange rates you can often do a quick search on Google and it will tell you what the current rate is. Many people not only use exchange rates for their holidays, but they will also invest in them, much like with stocks: If the value of their currency increased they can sell it for a higher price- this is something to watch out for as you do your research.

The way exchange rates are displayed is like this: GBP/USD= 1.34. This means that for every 1 British pound there is 1.34 US dollars. Therefore, if you want to buy 1 British pound you have to pay 1.34 US dollars. To reverse it and see how much it would cost to in British pounds to buy 1 US dollar, you simply need to do 1/exchange rate. In this case, it will be 1/1.34- which equates to 0.7462

Often when you go into a shop or an agent to convert your currency, they will offer you a higher exchange rate than the traders will receive. This is a normal part of business and it means that they can make a profit out of your exchange. So, if the exchange rate is 1.34, they might offer you a rate of 1.45 instead. This will, of course, mean that you have to pay 1.45 dollars in order to buy 1 British pound, so the total money you spend will be higher than it needs to be. Make sure you do some research on a site like this  to find the markup which is as close as possible to the exchange rate.


If you are going abroad on holiday, you will want to work out how much you need to take you’re you for food, entertainment and general spending. In order for you to work out how much money you will need to save up, you need to calculate the exchange rate. For example, if you want to take £1000 on holiday with you, and the exchange rate is 1.34, you will need to save up $1340 in order to exchange the two. However, bearing in mind the fact that many traders will up the price, you might want to save up an extra hundred or so just in case.

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