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Exchange rates: how do they work?

The basics

Exchange rates show the comparative value of different currencies: how many Euros you can get for, say, £100. 

Exchange rates are phrased as a number, which typically begins with 1. This is basically a shorthand for saying: 1 unit of the first currency is worth [this number] of the second currency.

For example, if the first currency is GBP and the second is Euro, and the exchange rate is 1.5, then 1 unit of GBP is worth 1.5 Euros. If you want to ask for 30 units of GBP to be converted into Euros, you’d get 45. Simple!


Why exchange rates fluctuate

Currencies constantly move up and down against each other as they are bought and sold across the world. The people doing the buying are banks and trading institutions.

An easy way to estimate the value of a currency is to look at how much of it is being bought and sold at any given time. When a lot of one currency is being bought, it can be assumed that buyers value it.

There are many reasons why demand for a currency might change. Rising interest rates,  increased business activity, or political and economic events are some common examples.

The amount of travel money you receive will vary from day to day, depending on what the exchange rate is at the time you buy your currency.


How to get the best value

A good rule of thumb is to always order your currency online. For the majority of currency providers, it’s cheaper to provide travel money online because there are fewer operating costs. That’s why we always talk about receiving better rates online.

Use our calculator to work out how much you’ll get based on today’s exchange rate, then pick the best way to get your cash – whether that’s click & collect, home delivery, or loaded on a Mastercard® ICE Clear Card.


Why is the exchange rate more than the market rate?

The spot market rate is the rate at which banks change currencies between themselves. When you want to exchange one currency into another, you’ll need the help of a couple of people: someone who can buy the currency on your behalf and someone who can actually give you the money e.g. ICE!

The time taken to get the currency into your hands, as well as the overhead costs we incur to be in a convenient location, means that we charge an extra fee to cover our costs.

We always strive to make our prices fair and competitive. That’s why we give you a range of different ways to get your travel money depending on how quickly you need your cash. Find out more about the different options we offer here.

Why do we talk about ‘buying’ a currency?

When you buy a product, you agree to pay the price that the person selling it is asking for.

Because they are between you and the object, they will typically ask for a higher price than the cost of the object itself. This covers several things: the cost of the item, the cost of the seller being around to sell it to you, and any overheads associated with that.
If you talk about ‘exchanging’ a product rather than ‘buying’ it, you suggest that one item is being swapped for another – in other words, that there are no additional costs on top.

It’s  the same with currency. There are more costs associated with handing you a new currency than just the currency itself. For this reason, it is useful to talk about ‘buying’ currency in this context.

Why do your exchange rates differ between different locations?

We have over 350 branches worldwide and there are various factors that mean we can’t charge the same exchange rate in every ICE branch. Differences in distribution, operating costs, regional competition and volatility in the market mean our prices often vary.

A good example is to compare running a store in an airport to the high street: rent is significantly higher in an airport, which has a knock-on effect on the price of everything in the airport, from your takeaway coffee to your travel money. It’s more cost-effective to operate online, which is why you can always find our best rates online.