The official monetary standard of a country is called the currency.
The rate of a country’s own currency is usually set at 100.
The foreign-exchange rate is the price, in your country’s currency, that you will have to pay for 100 of the foreign currency.
For example, if you are in a bank somewhere in United States and you want to exchange some dollars to euro, and you are told that the foreign-exchange rate of euro is 137.51, it means that it will cost you $137.51 to buy €100.
The exchange formula
Henry from Washington D.C. has returned from his trip to Europe. He has 81 € that he wants to exchange back to US-dollars. He goes into a bank in Washington.
At the time being the exchange rate of euro is 137.51.
How many US-dollars will he get, if we pretend that there is no exchange fee?
(The exchange rate of US-dollars is 100)
So Henry gets $111.38
Exchange rates in a bank
You will often find two columns of exchange rates, one called “We buy” and the other “We sell”. The first one is the rate being used, when you want to exchange your money to a foreign currency, and the latter is used, when you want to exchange your money back to you own currency. There is a little difference between the two sets of exchange rates, because the bank wants to profit from each currency trading.
When you look at an exchange rate board in a bank, the exchange rates are sometimes given in relation to 1 of the foreign currency (not 100).
In order to distinguish between the rates of the different country’s currency, each rate has a code, the so-called ISO 4217, which is always three letters. This code system is used all over the world.