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An exchange rate is commonly quoted using an acronym for the national currency it represents. For example, the acronym USD represents the U.S. dollar, while EUR represents the euro. To quote the currency pair for the dollar and the euro, it would be EUR/USD.

You can calculate an exchange rate by dividing the amount of the currency you start with by the amount of the foreign currency you'll get back. For example, if you have $100 and you get ?80 back, your exchange rate would be 100 divided by 80, or 1.25 Euros per dollar.

Conversion Rate in Action For example, if the euro/U.S. dollar conversion rate is 1.25, that means one euro can equate to $1.25 in American currency. Or if the U.S. dollar/Indian rupee (INR) conversion rate is 65.2, then one U.S. dollar is worth 65.2 Indian rupees.

The document currency is the currency of the transaction which depends on the structure of the transaction. In our example, we're legally obligated to pay 500 EUR. Thus our document currency is EUR. This currency is actually set on the document at the time of the transaction.

There are two ways to express an exchange rate between two currencies (e.g., between the U.S. dollar [$] and the British pound [£]). One can either write $/£ or £/$. These are reciprocals of each other. Thus if E is the $/£ exchange rate and V is the £/$ exchange rate, then E = 1/V.

Currency exchange of physical money (coins and paper bills) is usually done over the counter at a teller station, which can be found in various places such as airports, banks, hotels, and resorts. Currency exchanges make money by charging a nominal fee and through the bid-ask spread in a currency.

Decide whether to multiply or divide by the rate. If you are going from the ?1? to the other currency then multiply. If you are going to the ?1? from the other currency then divide.