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Learn about how foreign exchange rates work January 9, 2023

What is a foreign exchange rate?

Would you like to learn what a foreign exchange rate is and how to read the rates from banks and money transfer operators?

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A foreign exchange rate, or simply exchange rate or forex, is how much foreign currency you can buy with your local currency. This can also mean how much money you can send using your local currency to your loved ones in the destination’s (foreign) currency. 

Let’s use an example.  

Pretend that you are looking to exchange Australian Dollars (AUD) to Philippine Pesos (PHP). The local currency is AUD and foreign currency PHP. You have to find out how much PHP you can buy with 1 AUD. 

If the exchange rate is 1 AUD = 38 PHP, which means you can buy 38 Pesos with 1 Dollar. If you want to send 250 Dollars to your family in the Philippines, you have to multiply 250 Dollars by 38 Pesos. Your family will receive 9,500 Pesos (250 AUD x 38 PHP). 

How do I read exchange rates?  

Exchange rates are often quoted by banks or money transfer operators (MTO) in different ways. The following table provides a guide on what they mean. 

 

Exchange Rate Quote  Meaning  
I want to buy… 

Bank sells… 

This is the exchange rate the bank or MTO is selling foreign currency for local currency. 

For example: If you are sending money or travelling to the Philippines, this would mean you ‘want to buy’ Philippine Pesos (foreign currency) for Australian Dollars (local currency). 

Or the bank sells’ Philippine Pesos for Australian Dollars. 

I want to sell… 

Bank buys… 

This is the exchange rate the bank or MTO is buying foreign currency for local currency. 

For example: If you are returning to Australia from the Philippines with money left over, this would mean you ‘want to sell’ Philippine Pesos (foreign currency) for Australian Dollars (local currency). 

Or the ‘bank buys’ Philippine Pesos for Australian Dollars. 

What is the mid-market rate? 

This is the halfway point between the ‘buy’ and ‘sell’ exchange rates between two currencies at any given time. This rate is constantly changing along with the demand and supply of currencies. 

Why are the exchange rates I see at the bank or MTO different from the mid-market rate? 

The mid-market rate will usually differ from the exchange rates you will see quoted by the bank or MTO. This is because these organisations will apply a margin on top to profit from the transactions. 

It is important to understand exchange rates, especially when sending money home. Luckily, finding the best exchange rates is now made easier by comparison website such as our Compare Rates tool in SaverAsia. You can access our free comparison tool using the SaverAsia app or website. You can compare different banks and money transfer operators and find the best one that works for you before you send money home! 

Happy Saving!