Currency Conversion Rates Explained

What is an exchange rate?

Even if you're not looking to trade some currency on the foreign exchange market, it's important to understand currency conversion rates. Suppose you're planning a vacation abroad; knowledge of currency rates can help you save money.

In layman's terms, an exchange rate is simply a price, which can be calculated:

exchange rate = 1/exchange rate

For instance, if 1 US dollar is equal to 117 Japanese yen, you could calculate the exchange rate as:

1/117 = .00854

Alternatively, if you know the exchange rate of USD to yen is .00854:

1/.00854 = 117

Therefore, you can calculate that 1 USD can buy 117 yen.