Read and Calculate Currency Exchange Rates

Currency exchange rates are essential for travelers, traders, and investors. They are always changing due to political and economic factors. These figures aren’t difficult to find, but using them for calculations can be tricky. Here are the basics of reading and using currency exchange rates in Malaysia.

Travelers need to buy the currency of their destination to make payments abroad.  Traders and investors use currencies as instruments on the largest financial market. Every day, close to 6 trillion US dollars circulate between institutions and individuals. Learning to read quotes is a valuable skill.

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How to Find Rates

Thanks to the Internet, current rates are easy to find – just google the right combination (e.g., EUR/USD). The same information can be found in airports and bank offices. Finally, traders can monitor quotes using electronic terminals like MetaTrader 4.

The Euro and the US dollar are two global reserve currencies. They form the most popular pair. EUR/USD shows the price of 1 Euro in US dollars. All other currencies are also traded in duos, and most combinations include the American dollar.

Every pair follows the same formula. The first element is the ‘base’ currency. It is followed by a slash sign and the ‘quote’ or ‘counter’ currency. There are always two different prices: one for buyers and one for sellers. The latter is always slightly lower than the former. This is the logic of any sale.

Exchange rates are always fluctuating. They are driven by many different factors. These include:

  • supply and demand,
  • economic indicators,
  • commercial activity,
  • hedging, and
  • financial trading.

The size of these changes is determined by the volatility of a particular currency. The higher it is – the more dramatic the fluctuations. For most pairs, however, they constitute fractions of the price.

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Traders measure this difference in ‘pips.’ For instance, for EUR/USD, one pip equals $0.0001. With a pip calculator available on the Internet, users can easily convert potential profit into their national currency.

Do not forget to factor in the commission of the exchange operator. Forex brokers get their revenue from ‘spreads’ or the difference between the prices for the buyer and the seller. Some of them, known as ECNs (electronic communication networks), charge a commission per trade instead. Currency exchange offices in airports charge their own commission per operation. They may also use wider spreads.

How to Calculate Exchange Rates

For simple purposes like travel, the calculation is straightforward. If one Malaysian Ringgit costs 0.24 US dollars (MYR/USD), you need 417,20 MYR to buy 100 USD. This is calculated as 100/0.24. If you have 1,000 MYR, and you want to see how many dollars you can buy, multiply 1,000 by 0.24. This gives you 240 USD.

There are simple rules for any pair. In both cases, the ending currency is your desired outcome. Generally, you should divide across left-to-right to calculate how many MYR you get for your USD. To do the opposite – see how many MYR you need to buy USD – divide across right-to-left.

Travelers are comfortable with calculations to the cent. Problems begin in more complex situations. For instance, investors who want to buy foreign stock need to analyze financial statements in the respective currency.

Finance professionals need perfect accuracy, which includes measuring each pip. Fractions of a cent can mean a lot for big-volume trades. This may translate into thousands of dollars in institutional trades. With a live trading account from Forextime, you can access the global exchange with a modest initial investment. For those who can learn and analyze the market, the profit potential is undeniable.

Use Calculation Aids

Sometimes, small inaccuracies cause big mistakes. Traders and travelers alike should double-check their figures before making important decisions. Luckily, there are quite a few digital tools that help.

The Google Play Store and App Store have dozens of apps for tablets and smartphones. Let them handle calculations instead of racking your brain. Many give instant access to rates. It is important to remember that these may vary from rates in banks or airports. You can also find currency calculators on sites like Yahoo Finance.

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Conclusion: Use Automated Tools

It is not difficult to find accurate quotes for currency pairs and read them correctly. For example, if EUR/USD costs 1.14, you know that you need 1.14 dollars to buy 1 euro. Simple calculations involve one-time multiplication or division. Anything more complex, especially the investment and trading decisions, must be based on dedicated digital tools. The slightest inaccuracy may affect the outcome for big-volume trades. Automated tools save a lot of time, and they provide reliable results.

Interesting related article: “What is FOREX?