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Understanding Exchange Rates: How They Work and Why They Move

What really determines the price of one currency against another — and how to read those numbers correctly.

Understanding Exchange Rates

What Is an Exchange Rate?

An exchange rate is the price of one currency expressed in terms of another. When you see "1 USD = 83.5 INR", that means one US Dollar currently buys 83.5 Indian Rupees. This price changes constantly — sometimes by fractions, sometimes by significant amounts — depending on global supply and demand for each currency.

What Moves Exchange Rates?

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Interest Rates: Higher interest rates in a country attract foreign investment, increasing demand for that currency and pushing its value up.
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Inflation: Countries with lower inflation rates see their currency appreciate over time because purchasing power erodes more slowly.
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Economic Data: GDP growth, employment figures, and trade balances all signal the health of an economy and influence currency demand.
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Political Stability: Countries with stable governments attract more foreign investment, creating stronger demand for their currency.
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Market Speculation: Currency traders and hedge funds make bets on future movements, which can cause short-term volatility in exchange rates.

The Mid-Market Rate vs. Bank Rates

The mid-market rate — also called the interbank rate — is the midpoint between the buying and selling prices in the wholesale currency market. It's the fairest benchmark for any conversion.

Banks and currency exchange services rarely offer you the mid-market rate. They add a spread (markup) that can range from 0.5% to 5% or more, depending on the provider. Floconverter always shows you the clean mid-market rate so you know exactly what markup your bank or transfer service is adding.

See live mid-market rates for 170+ currencies at floconverter Live Rates.