how to find rate of change in a table

Exchange Rates at a Glance

CCO/PublicDomainPictures/Pixabay

Dealing with money in a foreign country can seem complicated, especially since not all currencies are valued equally. There's no central governing body that decides on a currency's relative value. Instead, factors such as inflation and interest rates, have an effect on the balance between any two nations' currencies. There are a variety of reasons that determine how many units of one currency you'll need in order to buy a unit of another currency.

How Exchange Rates Work

An exchange rate is the rate at which one currency is exchanged for another. It's also regarded as the value of one country's currency against the currency of another country. A weak currency gets you a relatively smaller return against a country with a stronger currency. For instance, one Canadian dollar may only get you 75 cents in American dollars. Currencies fluctuate all the time, and if a certain country's monetary value rises, then you'll receive a more favorable rate if you happen to be selling that currency. The balance between two nations' currencies is constantly in flux, and is determined by factors such as inflation, interest rates, debt, political stability and trading agreements.

How Exchange Rates are Determined

Exchange rates are determined in the foreign exchange market, or FOREX, which is used by a wide range of buyers and sellers. Currency trading happens 24 hours a day, except on weekends. Each country determines the exchange rate regime that will apply to its own currency. For example, the currency may be free-floating, fixed, or a hybrid, and exchange rates respond accordingly.

Free-floating exchange rates are market driven and change almost constantly, while some governments strive to keep their currency within a narrow range by using a fixed rate. Using a fixed rate currency system can mean a currency can become overvalued or undervalued, leading to excessive trade deficits or surpluses.

In the retail currency exchange market, various buying and selling rates will be quoted by money dealers. Most of these trades are to or from the local currency. The buying rate is the rate at which dealers buy foreign currency, while the selling rate is the one for which they'll sell the currency. Most dealers make their money by quoting rates that will incorporate an allowance into their trading margin, while some dealers charge a commission to make a profit.

Exchanging Currency While Traveling

Currency for cross-border payments and international travel is usually purchased from banks, foreign exchange brokerages, as well as various currency exchange businesses. These outlets get their currency from the interbank markets, valued by the Bank for International Settlements at around 5.3 trillion US dollars per day. To make a profit these dealers charge retail buyers money in the form of a commission, or by giving an exchange rate that is less favorable than the wholesale rate they pay for the money. The difference between the retail buying and selling prices is known as the bid-ask spread.