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Finance4 min read
How Exchange Rates Work: The Logic Behind Currency Conversion
Why does 1 USD equal roughly 7 CNY? Exchange rates aren't set arbitrarily. Use a [currency calculator](/finance/currency) to see your actual net amount and avoid hidden fees.
An exchange rate is essentially the relative price of two currencies, shaped by supply and demand, interest-rate gaps, inflation, and economic expectations.
Mid-market rate, cash rate, and fees
The rate you see quoted is often not what you end up with. Banks and platforms add a spread and fees on top of the mid-market rate. Use a currency calculator to compute the net amount before comparing channels.
When spending abroad, dynamic currency conversion (DCC) is usually more expensive than settling in the local currency. On overseas cards, choose to be charged in the local currency.