What is a Currency Converter and How Does it Work?

Are you new to the monetary world? Have the price variations between currencies and how they alter over time puzzled you a little bit? Have you ever wondered how the numerous currency calculators on the internet differ from one another?

Basics are as follows: A currency converter is essentially a program created to change one currency's value into another depending on the current market rate. Where those values are created is where the difficulty lies. The fact that the values are frequently based on current market prices or bank exchange rates might be quite important. We'll explain what a currency converter is and why various businesses give varying conversion rates.

What are exchange rates and what is a currency converter?

The simplest way to explain how the values of two currencies relate to one another is by using exchange rates in a currency converter. The cost of moving money from one currency to another is known as the exchange rate. How many Vietnamese Dong can you purchase with a single Iraqi Dinar, or how much does a single Iraqi Dinar cost?

Similar to other assets like equities and precious metals, currency rates change with the market. The price of a currency on the market frequently differs from the rate you will be given at your bank. Exchange rates are always determined by how much someone else is ready to pay for a currency, and currencies are constantly valued in relation to one another.

For instance, suppose you wish to determine how much a currency is worth in relation to the US dollar. The base currency is the US dollar, and the currency you choose will be compared to it in terms of value. The program may inform you that 10,000 Iraqi dinars are worth more than $8 US when you enter them into a converter. A decent converter will also provide you with a trend chart that illustrates how that number has changed over time.

To view conversion rates for numerous currencies, utilize the currency converter found at this link. Three crucial pieces of information are provided by the currency converter above:

Charting historical information

The official market rate is based on FOREX market pricing for currency exchangers' purchase and sell.

Exchange rate calculation methods

If you're wondering why a currency converter is useful, let's go through how to calculate currency conversions mathematically. You can accomplish this on your own without using a currency converter, but it does need some elementary math that most of us have probably forgotten.

Suppose you want to convert $100 in U.S. dollars into British pounds at the current GBP/USD exchange rate of 1.5. Use one of the methods below to compute this:

To find the number of pounds you will receive, simply divide $100 by 1.50: In such scenario, 66.66.

In order to convert pounds to dollars, you must reverse the procedure by multiplying the amount of pounds by 1.50 to get the amount of dollars.