Whether you're traveling, shopping online, or investing internationally, you'll encounter foreign exchange (forex) rates. Understanding how they work is key to making smart financial decisions. This guide breaks down the essentials.

What is an Exchange Rate?

An exchange rate is simply the value of one country's currency in relation to another. For example, if the USD to INR exchange rate is 83.5, it means one US Dollar is worth 83.5 Indian Rupees.

What Makes Exchange Rates Change?

Currency values are constantly fluctuating in the global forex market. Several factors influence these changes:

• Interest Rates: Higher interest rates in a country tend to attract foreign investment, increasing demand for and the value of its currency.
• Inflation: A country with consistently lower inflation exhibits a rising currency value, as its purchasing power increases relative to other currencies.
• Economic Performance: Strong economic growth, measured by indicators like GDP, attracts investment and boosts a currency's value.
• Geopolitical Stability: Political stability and low risk create a safe environment for investors, strengthening a currency.

Understanding Mid-Market vs. Tourist Rates

When you look up an exchange rate, you're usually seeing the "mid-market rate." This is the midpoint between the buy and sell prices on the global markets—the 'purest' rate.

However, when you exchange money at a bank or currency exchange service, they charge a "spread" or margin on top of this rate. This is their profit. To get the best deal, you want to find a service with the lowest spread.

Comparing the rate offered to you with the live mid-market rate on a tool like UniCalc is the best way to see how much of a fee you're really paying.