Currency Conversion Basics: Understanding Exchange Rates
Omni Editorial Team
Our editorial team researches, tests, and recommends the best conversion tools and methods to help you make accurate conversions every time.
Currency conversions are essential for international travel, business, and investment. Here's a guide to understanding currency conversions:
Basic Concepts
- Exchange Rate: The value of one currency expressed in terms of another
- Base Currency: The first currency in an exchange rate pair
- Quote Currency: The second currency in an exchange rate pair
- Direct Quote: Shows how much of the domestic currency is needed to buy one unit of foreign currency
- Indirect Quote: Shows how much of the foreign currency is needed to buy one unit of domestic currency
Conversion Formula
Amount in Quote Currency = Amount in Base Currency × Exchange Rate
Example
If the EUR/USD exchange rate is 1.10:
- €100 = €100 × 1.10 = $110
- $100 = $100 ÷ 1.10 = €90.91
Remember that exchange rates fluctuate constantly based on economic factors, political events, and market sentiment.
