A currency converter is software code that is designed to convert one currency into another in order to check its corresponding value. The code is generally a part of a web site or it forms a mobile app and it is based on current market or bank exchange rates.
In order to convert one currency into another, a user enters an amount of money and chooses the currency he/she wishes to check the monetary value of. After that, the user selects one, or sometimes several other currencies, he/she would like to see the result in. The application software then calculates and displays the corresponding amount of money.
A currency converter aim is to maintain real-time information on current market or bank exchange rates, so that the calculated result changes whenever the value of either of the component currencies does. They do so by connecting to a database of current currency exchange rates.
A currency converter usually display a value that is not biased towards buying or selling. This is useful when:
• Estimating the value of goods or services;
• Basic accounting and invoicing;
• Preparing financial plans and reports.
A currency converter is often used as a means of checking the relative value of a currency before exchanging it into another currency. This is useful for the traveler because the traveler can check the value of a foreign county’s currency before exchanging money. These programs list the value of a foreign country’s currency relative to the traveler’s own currency.
The currency converter software calculates the rates as decimal point numbers with typically 4 decimals after the comma. Some may calculate the conversion rates with more decimals internally but only 4 are displayed. This is related to precision, software internalization and how the Forex (foreign exchange) market works, where most conversions have 4 decimal places, although some currency pairs also have 5. Some currency converter software converts currency alongside information regarding the currencies. This information can be very helpful for travelers and those looking to make money by trading currency.
The value of currency constantly fluctuates and is affected by a variety of different factors, including:
• The value of the nation’s imports & exports;
• The relative political stability of the country;
• War in the region;
• Natural disasters;
• The country’s public debts with other countries;
• The regulatory policies of the country’s central bank;
• The fluctuation of the county’s inflation rates.
Traders and institutions buy and sell currencies 24 hours a day during the week. For a trade to occur, one currency must be exchanged for another. To buy British Pounds (GBP), another currency must be used to buy it. Whatever currency is used will create a currency pair. If U.S. dollars (USD) are used to buy GBP, the exchange rate is for the GBP/USD pair.
When you go to the bank to covert currencies, you most likely won’t get the market price that traders get. The bank or currency exchange house will markup the price so they make a profit, as will credit cards and payment services providers such as PayPal when a currency conversion occurs.
Banks and currency exchanges compensate themselves for this service. The bank gives you cash, whereas traders in the market do not deal in cash. In order to get cash, wire fees and processing or withdrawal fees would be applied to a forex account in case the investor needs the money physically. For most people looking for currency conversion, getting cash instantly and without fees, but paying a markup, is a worthwhile compromise.
Shop around for an exchange rate that is closer to the market exchange rate; it can save you money. Some banks have have ATM network alliances worldwide, offering customers a more favorable exchange rate when they withdraw funds from allied banks.
Exchange rates always apply to the cost of one currency relative to another. The order in which the pair are listed (USD/CAD versus CAD/USD) matters. Remember the first currency is always equal to one unit and the second currency is how much of that second currency it takes to buy one unit of the first currency. From there you can calculate your conversion requirements. Banks will markup the price of currencies to compensate themselves for the service. Shopping around may save you some money as some companies will have a smaller markup, relative to the market exchange rate, than others.