How to Calculate Foreign Exchange Rates

Foreign exchange rates are how much it cost to exchange one currency for another currency. Foreign exchange rates often fluctuate it fluctuates throughout the week because many currencies are traded at the same time. This fluctuation makes the prices of a certain currency to rise or to fall. Fluctuations also affect stocks and gold. For example how many Canadian dollars takes to buy US dollars in a bank.

Institutions and traders sell and buy currencies 24 hours in a day and also the whole week. For buying and selling to occur two currencies in the market should be available. For example to buy US dollar another currency should be used to buy it. Whatever the currency that is used to buy US dollar is called currency pair. For example, if British pound is used to buy US dollar the currency pair will be US dollar/British pound.

Also, it is important to know how to read foreign exchange rates. For example, if the US dollar/British Pound foreign exchange rate is 1.2, this means that it cost 1.2 British pounds to buy 1 US dollar. The common Phrase used to represent US dollars is USD, while for example for the Canadian dollar is CAD. The second unit means how much it cost to buy the second unit.

There is a common formula that is used to calculate exchange rate. In this case to find how much British pound is needed to buy 1 US dollar is 1/1.2=0.9. This means it cost 0.9 US dollars to buy 1 British pound. The price will be reflected in the currency pair. The position of the currency pair usually switches because of the fluctuations of prices. The investors should compare the favourable current pair prices in the market.

Many sites usually update the foreign exchange rates of currency pair as they appear daily. The best site is Yahoo Finance. This website provides the rate of currency pairs as they happen in the market. If an investor is looking for a certain currency, one should simply visit the website, and at the bottom of it, there is Add currency button. One should type the two currencies that are involved and find their exchange rates. Also with live foreign exchange rates, can help because it has most exchange rates for currency pairs.

The spread of conversion is also involved in foreign exchange rate. For example, when an investor goes to the bank to convert particular currencies it is hard to get the price the traders usually want. The banks usually increase the price of exchange rates for them to gain profit. The price of payment services such as PayPal and Credit cards are usually high for financial institutions to get profit. For example, if the price of USD/CAD in the forex trading market is 1.1, there are high chances that in the bank the exchange rate is 1.3. The difference between the price in the market and the price in the financial institutions is profit.

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