What is an exchange rate?
An exchange rate is the ratio given between two currencies for the purpose of converting one currency to another. For example "The exchange rate of US dollar to Pound Sterling was 0.80 in February 2017." This means US$1.0 was equivalent to 0.8 pounds. If the exchange rate changed to 0.70, US dollar would be relatively less valued.
Who decides exchange rates?
Exchange rates between currencies are not governed by any single organisation, however the Bank for International Settlements was formed by Central banks around the world to encourage international financial cooperation and serve as a bank for the Central banks.
How this affects exchange rates is Central banks in respective countries take into consideration a significant amount of economic factors within their country and in respect to other countries to calculate the relative value of their own currency to others. These banks then 'offer' exchange rates against other currencies which is commonly known as interbank exchange rates and this influences what commercial banks and foreign exchange service providers offer to consumers and businesses.
Central banks around the world
There are 60 central banks around the world that are part of Bank for International Settlements, however eight Central banks are recognised as the major Central banks:
- US Federal Reserve Bank (USD)
- European Central Bank (EUR)
- Bank of England (GBP)
- Bank of Japan (JPY)
- Swiss National Bank (CHF)
- Bank of Canada (CAD)
- Reserve Bank of Australia (AUD)
- Reserve Bank of New Zealand (NZD)
Live exchange rates
The exchange rate you may see on the news is the "interbank exchange rate" which is what banks and foreign exchange providers obtain in bulk. The exchange rates you see on FX Compare are the "customer rates" which takes into account costs for these companies to operate and what each individual provider is willing to offer you. Some companies operate more efficiently, while others specialise so the exchange rate you can obtain can vary significantly. This is why it is important to check the latest, live exchange rates from each provider before making a decision to exchange currency.
Check out the currency converter tool to compare the currency pair you are interested in and quickly find the provider that best fits your requirements. This page contains additional information about international money transfer and when you are ready to send money, click on the provider of your choice.