What Are Exchange Rates?
Exchange rates determine how much one currency is worth in terms of another. If EUR/USD is 1.10, one Euro equals $1.10 USD.
These rates fluctuate constantly. Understanding them is crucial because the rate you get often costs more than the transfer fee.
💡 Key Insight:
On a $1,000 transfer, a 3% worse exchange rate costs $30 often more than the transfer fee.
The Mid-Market Rate Explained
The mid-market rate (also called interbank or real rate) is the midpoint between buy and sell prices. This is the "true" exchange rate with no markup.
Example: EUR/USD Mid-Market Rate
Wise - Only Service with 0% Markup
Wise uses the real mid-market rate. What you see on Google is what you get. Saves 2-6% vs others.
Understanding Exchange Rate Markups
| Service | Mid-Market | Their Rate | Markup | Cost/$1k |
|---|---|---|---|---|
| Wise | 1.1000 | 1.1000 | 0% | $0 |
| PayPal | 1.1000 | 1.1396 | 3.6% | $36 |
| Bank Wire | 1.1000 | 1.1704 | 6.4% | $64 |
⚠️ Hidden Cost Alert:
Monthly $1,000 transfers with 4% markup: $480 per year in hidden costs.
Calculating Real Exchange Costs
Step-by-Step
- 1. Find mid-market rate: Google "USD to EUR" → 1 EUR = $1.10
- 2. Get service's rate: Service offers 1 EUR = $1.14
- 3. Calculate markup: (1.14 - 1.10) / 1.10 × 100 = 3.6%
- 4. Dollar cost: $1,000 × 3.6% = $36
How to Get the Best Exchange Rates
1. Use Wise for 0% Markup
Wise is the only major service using the real mid-market rate. Saves 2-6% vs competitors.
2. Transfer During Market Hours
- Best: Weekdays, 8am-5pm EST
- Avoid: Weekends (spreads widen 0.5-1%)
3. Avoid These Places
- ✗ Airport exchanges: 8-15% markup
- ✗ Hotel exchanges: 10-18% markup
- ✗ Credit card DCC: 3-7% markup
Understanding Major Currency Pairs
Different currency pairs have different characteristics. Here's what you need to know:
EUR/USD - Most Traded Pair
Characteristics:
- • Highest liquidity - tightest spreads
- • Typical daily range: 0.5-1%
- • Best rates during EU/US overlap (8am-12pm EST)
- • Affected by ECB and Fed policies
Current Rate Context:
- • 10-year average: ~1.15
- • Historical high: 1.60 (2008)
- • Historical low: 0.82 (2000)
- • Use Wise: Save $36 per $1,000 vs PayPal
GBP/USD - "Cable" Rate
Characteristics:
- • High volatility - 1-2% daily swings common
- • Sensitive to Brexit, UK politics
- • Best liquidity: 8am-12pm EST
- • Higher markup at most services (0.5-1%)
Transfer Tips:
- • Very efficient Wise corridor (0.35% fee)
- • Avoid transfers during UK political events
- • Use rate alerts for large amounts
- • Weekend spreads 1% wider
USD/MXN - High Volume Corridor
Characteristics:
- • Highest remittance corridor ($50B+/year)
- • Emerging market - more volatile
- • Typical range: 18-25 MXN per USD
- • Affected by oil prices, US policy
Best Practices:
- • Services add 2-5% markup typically
- • Wise offers 0% markup here too
- • Avoid Western Union (5-7% markup)
- • Timing matters less - consistent spreads
USD/INR - Growing Corridor
Characteristics:
- • Managed float - RBI controls range
- • Stable within 1-2% monthly range
- • Historical range: 60-85 INR per USD
- • Student/IT worker transfers common
Special Considerations:
- • Requires PAN card for large transfers
- • Purpose code mandatory
- • Banks add 3-5% markup
- • Wise: 0.6% fee, 0% markup
Real-World Exchange Rate Impact
Example #1: Student Tuition - Exchange Rate Timing Matters
Scenario: Paying £10,000 university tuition from USA over 3 months
❌ Option 1: Pay immediately at unfavorable rate
- • GBP/USD rate: 1.28 (poor rate during GBP strength)
- • Cost: £10,000 × 1.28 = $12,800
- • Wise fee (0.35%): $45
- • Total: $12,845
Option 2: Use rate alert, wait 2 weeks for better rate
- • GBP/USD rate: 1.25 (improved 2.3%)
- • Cost: £10,000 × 1.25 = $12,500
- • Wise fee (0.35%): $44
- • Total: $12,544
💰 Savings from timing: $301 (2.3% better rate)
If paying multiple terms, this strategy saves $900-1,200 annually.
Example #2: Family Support - Markup vs Fee Comparison
Scenario: Sending $1,000/month to Mexico
| Service | Real Rate | Their Rate | Fee | Total Cost |
|---|---|---|---|---|
| Wise | 20.00 | 20.00 | $5 | $5 |
| Remitly | 20.00 | 20.40 | $4 | $24 |
| PayPal | 20.00 | 20.72 | $35 | $71 |
| Western Union | 20.00 | 21.00 | $15 | $65 |
Annual Impact:
- • Wise: $60/year
- • Remitly: $288/year
- • PayPal: $852/year
- • Western Union: $780/year
💰 Switching to Wise saves $720-792/year vs alternatives
Example #3: Business Payments - Rate Fluctuation Risk
Scenario: US company paying European contractor €50,000 over year
Rate Fluctuation During Year:
Solutions:
- • Forward Contract (XE/OFX): Lock rate at 1.09 for whole year = $54,500 total (removes uncertainty)
- • Rate Alerts (Wise): Transfer when rate is favorable (below 1.09)
- • Monthly Strategy: Transfer €4,167/month at varying rates = ~$54,200 average
What Drives Exchange Rate Changes
1. Interest Rate Differentials (Most Important)
Higher interest rates attract foreign investment, strengthening currency.
Real Example (2024-2025):
- • US Federal Reserve raised rates to 5.5%
- • ECB raised to 4.0% (1.5% differential)
- • Result: USD strengthened 8% vs EUR
- • Impact: $1,000 transfer cost $80 more at end vs beginning of year
2. Economic Data Releases
Strong economic data strengthens currency as it signals healthy economy.
Key Reports (avoid transferring 1-2 hours after):
- • Employment data: First Friday monthly (8:30am EST) - can move rates 0.5-1%
- • GDP reports: Quarterly - major indicator
- • Inflation (CPI): Monthly - directly affects Fed decisions
- • Central bank meetings: Fed (8x/year), ECB (8x/year) - can cause 1-2% swings
3. Political Events & Uncertainty
Political instability weakens currency as investors seek safer alternatives.
Historical Examples:
- • Brexit Vote (2016): GBP fell 10% overnight (£10,000 suddenly cost $1,000 more)
- • 2016 US Election: USD gained 5% in weeks after
- • Greek Debt Crisis: EUR weakened 15% over months
⚠️ Avoid large transfers during major political events if possible
4. Trade Balance & Current Account
Countries exporting more than importing have stronger currencies.
Germany/China: Large trade surpluses → stronger EUR/CNY
USA: Trade deficit but reserve currency status → mixed impact
Exchange Rates: Business vs Personal Transfers
Personal Transfers
Best Strategy:
- • Use Wise for lowest fees + 0% markup
- • Set rate alerts for non-urgent transfers
- • Transfer weekdays for better rates
- • Consolidate small transfers
When Rate Matters Most:
- • Tuition payments ($10,000+)
- • Property purchases
- • Large one-time transfers
- • Retirement fund transfers
Business Transfers
Advanced Strategies:
- • Forward contracts to lock rates (XE, OFX)
- • Hedging with options for large exposure
- • Multi-currency accounts (Wise Business)
- • Regular payment schedules
When to Hedge:
- • International payroll ($50,000+/month)
- • Regular supplier payments
- • Multi-year contracts
- • Thin profit margins (under 10%)
Forward Contract Example:
Company needs to pay €100,000 in 6 months. Current rate: 1.10, but could go to 1.15 (costing $5,000 more).
• Without hedge: Risk $105,000-115,000 depending on rate movement
• With forward contract: Lock 1.11 = exactly $111,000 (certainty for budgeting)
• Cost: 0.5-1% fee ($550-1,100) for rate certainty
Frequently Asked Questions
What is the mid-market exchange rate?
The mid-market rate is the midpoint between buy and sell prices. It's the "true" rate with no markup. Only Wise uses this rate.
What is exchange rate markup?
Markup is the hidden fee added to the exchange rate. If the real rate is 1.10 but you get 1.14, the 3.6% difference is markup costing $36 per $1,000.
Where can I check real-time exchange rates?
Multiple reliable sources show the real mid-market rate:
- • Google: Search "USD to EUR" - shows mid-market rate from multiple sources
- • XE.com: Professional forex data, historical charts, rate alerts
- • Bloomberg/Reuters: Real-time institutional rates
- • Wise app: Shows mid-market rate + their exact fee
Always compare: Get mid-market rate, then see what services offer. If difference is over 1%, you're paying hidden markup.
How much do exchange rate markups really cost me?
Markups are percentage-based, so they scale with your transfer amount:
Annual impact: Monthly $1,000 transfer with 4% markup = $480/year wasted. Wise (0% markup) saves you all of this.
Why do banks and PayPal add exchange rate markups?
It's their primary profit source on international transfers:
- • Hidden profit: Most customers don't check the real rate, so they don't notice 3-6% markup
- • Legal loophole: They must disclose fees but not rate markup
- • Maximizes revenue: PayPal makes MORE from markup ($36/1k) than fees ($35/1k)
- • No transparency: They show "competitive rate" without comparing to mid-market
Wise disrupted this: By using mid-market rate (0% markup) and showing transparent fees, forcing others to slowly improve.
Do exchange rates change during my transfer?
Depends on when the rate is locked:
Rate Locked at Initiation (Wise, most online services):
Rate shown when you start transfer is guaranteed. Even if rate moves 5% during processing, you get the original rate. This protects you.
⚠️ Rate Locked at Processing (Some banks):
Rate locked when bank processes (1-3 days later). If rate worsens, you pay more. If improves, you might save. Adds uncertainty.
Always ask: "Is the rate guaranteed at initiation?" before transferring.
Should I wait for a better exchange rate?
Depends on urgency and amount:
Worth Waiting If:
- • Transfer over $5,000
- • Not time-sensitive (can wait 2-4 weeks)
- • Rate currently unfavorable (check 30-day average)
- • Potential savings over 2% ($100+ on $5k)
✗ Don't Wait If:
- • Urgent payment (bills, tuition deadline)
- • Small transfer (under $1,000)
- • Rate at 30-day average already
- • Savings under $20-30
Smart approach: Set rate alert on Wise/XE. Transfer automatically when target rate reached. No daily monitoring needed.
Are weekend exchange rates worse than weekday rates?
Yes, significantly worse - avoid weekend transfers:
Weekend Impact:
- • Spreads widen 0.5-1%: Services add extra markup when markets closed
- • Cost on $1,000: Extra $5-10 vs weekday transfer
- • Why it happens: Less liquidity, services cover risk of Monday gap
- • Annual impact: If transferring weekends monthly = $60-120/year wasted
Best practice: Always transfer Tuesday-Thursday, 8am-4pm EST when both major markets (London + New York) are open.
Can I negotiate better exchange rates with my bank?
Yes, but only for very large transfers:
Negotiation Leverage:
- • $50,000+: May reduce fee from $45 to $25-35
- • $100,000+: May reduce rate markup from 4% to 2-3%
- • $500,000+: Significant negotiation possible, treasury desk involvement
- • Regular transfers: Better rates if $100k+/month volume
Reality check: Even negotiated bank rates (2% markup on $100k = $2,000) are worse than Wise (0.41% = $410). Banks rarely match specialized services.
What's the difference between spot rate and forward rate?
Important for business transfers and currency hedging:
Spot Rate
- • Current market rate
- • For immediate delivery (1-2 days)
- • What you see on Google/XE
- • Changes constantly during market hours
- • Use for: Regular personal transfers
Forward Rate
- • Agreed rate for future date (1-12+ months)
- • Locks in today for delivery later
- • Includes interest rate differential
- • Protects against adverse moves
- • Use for: Business contracts, large planned transfers
Example: Spot EUR/USD = 1.10. Forward 6-month = 1.11 (includes US higher interest rates). Lock 1.11 now, transfer in 6 months at that rate regardless of market.
How much does poor exchange rates cost over a year?
Annual cost compounds significantly - real examples:
Annual Cost of Rate Markup:
Over 5 years: Regular $1,000/month transfer with 4% markup costs $2,400 extra vs using Wise. That's significant money lost to hidden markups.
Key Takeaways on Exchange Rates
- Use Wise for 0% markup - saves 2-6% on every transfer
- Exchange rate markup often costs more than transfer fees
- Always check mid-market rate on Google/XE.com before transferring
- Avoid airport/hotel exchanges (8-18% markup)
- Transfer weekdays during market hours for best rates