While most nations price the difference in their currencies on the foreign exchange market, some nations control the exchange rate of their currency against outside monetary units. This is called a fixed exchange rate.
Different governments maintain different rationales for maintaining a fixed exchange rate. In Cuba, where one Cuban Convertible Peso is equal to one American Dollar, the U.S. embargo and political differences caused the Cuban government to treat tourist dollars the same as American dollars. Meanwhile, in China, the government elects to peg their currency against the Dollar,
Think of it like this: fixed exchange rates seek to maintain a stable exchange rate by controlling how much a foreign currency is worth, while flexible exchange rates are based on several economic factors, including the strength of a nation’s overall financial health.
Flexible exchange rates can change day to day but are often in very small increments of less than one cent. But major economic factors, like government shifts or business decisions, can have impacts on international exchange rates.
For instance, consider the shifts in the U.S. the American Dollar dropped in value compared to their international counterparts. When the economy entered the Great Recession, the dollar gained some strength back, because major corporations were holding onto their wealth.
When Greece was on the verge of an economic meltdown, the Euro weakened in value. In turn, the American Dollar grew in strength, giving Americans more buying power in the European Economic Area. The British referendum vote to leave the European Union shifted the dollar’s value even further, pulling it closer to being even with the British Pound Sterling.
If you’re having trouble with 1 usd to eur you could try a program or other academic material. International situations can have a major effect on how much the U.S. Dollar is worth abroad. By understanding how these things could change your buying power abroad, you can quickly make decisions on when to exchange your cash for local currency, or hold on to American Dollars and spend using your credit or debit card.
banks can elect to process purchases made on debit or credit cards while they are abroad. However, many also choose to tack on an additional fee–sometimes called an international transaction fee –to the transaction. This is usually charged as a percentage of the transaction fee and may be separate from the bank fees.
Because these are separate charges, an international transaction fee is not considered part of an exchange rate. To get the best rates while abroad, be sure to always use credit and debit cards that do not charge an international transaction fee.
Before you travel, or while you’re traveling, you need to know what the exchange rate is so you’ll know how much your money is worth in another country. If a dollar isn’t worth a dollar abroad, you can budget accordingly, and now how much you’re actually spending while traveling.