You can calculate an exchange rate by dividing the amount of the currency you start with by the amount of the foreign currency you’ll get back. For example, if you have $100 and you get €80 back, your exchange rate would be 100 divided by 80, or 1.25 Euros per dollar.
Most of the time, someone else will calculate the exchange for you. Credit cards automatically handle currency conversion when you make a purchase from a foreign merchant. The two worldwide card networks – Visa and Mastercard – post their exchange rates online and update them daily. And those rates are quite a bit lower than what banks and airport kiosks charge for exchanging hard currency. In fact, using a Visa or Mastercard credit card with no foreign transaction fee can save you up to 9% on all your international spending, according to WalletHub’s exchange rate study.
It will generally be more useful for you to know how to calculate the amount of a foreign currency you’ll get based on the exchange rate. You can do that with simple division. Divide your starting amount by the exchange rate to get the converted amount. For example, $100/1.25 = €80.
Understanding how exchange rates work is vital to make sure you don’t get taken advantage of while traveling. There are a few more things you should know about the process, too.
Here’s how to calculate exchange rates:
- Check your card network’s website. Visa and Mastercard publish daily exchange rates from U.S. Dollars to all other major currencies. Discover and Amex don’t, but card network exchange rates tend to be very similar.
- The formula for calculating exchange rates is: Starting Amount (Original Currency) / Ending Amount (New Currency) = Exchange Rate. For example, if you exchange 100 U.S. Dollars for 80 Euros, the exchange rate would be 1.25. But if you exchange 80 Euros for 100 U.S. Dollars, the exchange rate would be 0.8.
- To calculate how much of a foreign currency you’ll get with a particular exchange rate, divide the amount of money you’re starting with by the exchange rate.
While it’s good to be conscious of exchange rates when you go abroad, using a credit card to automatically access the best conversion rates is a great way to make things simple and relatively inexpensive.
Just make sure to avoid Dynamic Currency Conversion. That’s when a foreign merchant converts your purchase total to U.S. Dollars, supposedly as a convenience but really to apply a high exchange rate and turn a bigger profit. So always pay in the local currency.