# How To Know If You Need To Switch Formula How to Determine an Exchange Rate

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## How to Determine an Exchange Rate

An exchange rate is the price of exchanging one currency for another. Exchange rates fluctuate throughout the week because currencies are actively traded. That causes the price to go up and down. The value of money in the market is different from the rate you will get from your bank when exchanging money.

Market Exchange Rates

Traders and companies buy and sell currencies around the clock on weekdays. For trade to take place, one currency must be exchanged for another. For example to buy British Pounds (GBP), another currency must be used to buy it. Whatever currency will be used a couple of currencies will be created. If US dollars (USD) are used to buy GBP, then the exchange rate is the GBP/USD pair.

Understanding Exchange Rate

If the exchange rate of the USD/CAD pair is 1.0950, it means that one US dollar is worth 1.0950 Canadian dollars. The first currency in the pair always represents one unit of that currency. The exchange rate shows how much of the second currency is needed to buy one unit of the first currency. In other words, this rate tells you how much it costs to buy one US dollar using Canadian dollars.

To find out how much it costs to buy one Canadian dollar using US dollars the following formula should be used: 1/exc. rate. In this case the currency area will change (CAD / USD).

When people go to the bank to exchange money, they may not get the market value that traders get. This is because the bank will mark up the price to make a profit. If the USD/CAD rate is 1.0950, the market will say that buying one US dollar costs 1.0950 Canadian dollars. However the bank says it can cost 1.12 Canadian dollars. This difference represents an advantage. If you want to calculate the percentage difference, take the difference between the two exchange rates and divide by the market exchange rate as follows: 1.12 – 1.0950 = 0.025 / 1.0950 = 0.023.

Exchanges and banks pay for this service themselves. The bank supplies the money, while the traders ignore the cash in the market. Funding, processing, wire or withdrawal fees will be applied to the forex account. For many people who want to change money, getting money temporarily and without fees, but paying a mark, is the right balance.

If you need foreign currency, you should use exch. prices to calculate how much foreign currency you need and how much of your local currency you will need to buy.

If you are talking about Europe, you will need euros (EUR) and you will need to check the EUR/USD rate at your bank. The market rate may be 1.3330, but the exchange house may pay you 1.35 or more.

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