How Exchange Rates Work (and why they change)

Understanding Exchange Rates

If you've ever wondered why the exchange rate you get isn't the same as Google shows, or why rates seem to change constantly, you're in the right place. Exchange rates determine how much money your recipient receives, and understanding how they work is key to keeping more money in your remittances. The key is knowing how rates are set and how to compare effectively.

The Bottom Line

The mid-market rate is your anchor; anything worse is a markup. Total cost = fee + FX spread vs. mid-market.

Compare per corridor, as rates and fees differ by route, method, and amount. Always compare the final "recipient gets" amount, not just the upfront fee.

Quick Takeaways

Mid-market is your anchor

The mid-market rate is a neutral reference; anything worse is a markup.

Total cost = fee + spread

Both the upfront fee and the FX spread (markup) determine your total cost.

Compare per corridor

Rates and fees differ by route, method, and amount. Compare the final amount received.

What shapes the FX rate

1. Supply & Demand (most common)

Capital flows, trade balances, and sentiment move currencies. When demand for a currency increases, its value goes up. Economic news, political events, and market sentiment all drive currency movements in real-time.

What to do: Compare providers at the final step before you pay. If the quote drifts, refresh both providers and compare again at the same time.

2. Interest Rates & Inflation

Central bank policy shifts FX relative values. Higher interest rates typically strengthen a currency as investors seek better returns. Inflation expectations also drive currency movements.

What this means: When a country raises interest rates, its currency often strengthens because investors move money there for better returns.

3. News & Risk Events

Geo events, data releases, and risk-on/off swings drive intraday moves. Major announcements can cause rapid rate changes. Elections, trade deals, and economic data releases all impact rates.

What to know: Rates can move 1-2% in minutes around major news. This is why providers refresh rates frequently during market hours.

4. Market Liquidity

Thin trading volumes widen spreads. Popular currency pairs (USD/EUR) have tighter spreads than exotic pairs. Weekend and holiday trading also affects liquidity.

Practical tip: Major pairs like USD → MXN usually have better rates than less common routes like USD → ZAR.

5. Provider Pricing Models

Different providers use different pricing strategies. Some offer lower fees but wider FX spreads, while others charge higher fees but offer better exchange rates. The provider's cost structure and target market affect how they price each corridor.

What to do: Always compare the final "recipient gets" amount rather than just the fee or exchange rate alone.

6. Payment Method & Corridor

Bank transfers usually get better rates than card payments. Popular corridors (like USD → MXN) often have tighter spreads than less common routes. The payout method (bank deposit vs cash pickup) can also affect the rate.

What to do: Compare rates for your specific corridor and payment method. What's cheapest for one route may not be cheapest for another.

The right way to compare (so you get the best rate)

Rule #1: Compare "recipient gets", not just fees.

The final amount your recipient receives is what matters. A zero-fee provider with a worse exchange rate can deliver less money than a provider with a small fee but a better rate.

Rule #2: Compare providers at the same moment.

Exchange rates move continuously. Comparing one provider now and another five minutes later can mislead you because rates change in real-time.

Rule #3: Match the same inputs.

Same:

•send amount (or receive amount),
•funding method,
•payout method,
•recipient country and currency.

What to do when comparing rates

Follow these steps to ensure you're comparing accurately:

1Start with the mid-market rate as your baseline reference.
2Get quotes from multiple providers at the same time for the exact same transfer details.
3Note the exchange rate each provider offers and the final amount your recipient will receive.
4Calculate the total cost including both fee and FX spread.
5Compare at checkout. The final step before payment is the only quote that matters.
6Choose the provider that delivers the most money to your recipient.

How to lock in the best outcome

You can't control FX markets, but you can control how you compare:

•Move quickly once you're ready. Rates change constantly, so compare and send when you find a good rate.
•Compare at checkout. The final step before payment shows the real rate and fees you'll pay.
•Avoid last-minute changes. Switching funding or payout methods can change the rate and fees.
•Prefer bank funding for better rates. Card funding is faster but usually costs more through higher fees or worse rates.
•Use rate alerts for volatile corridors. Set a target rate and get notified when it's reached instead of constantly checking.

The simple takeaway

Exchange rates move continuously, but you don't need to be a forex trader. The mid-market rate is your anchor. Compare providers on the final "recipient gets" amount, including both fee and FX spread. Focus on comparing at checkout with identical inputs.

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How Exchange Rates Work
(and why they change)