How to Compare Currency Rates

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U.S. dollars are just one currency.
U.S. dollars are just one currency. (Image: cash image by Alexey Klementiev from Fotolia.com)

Comparing currency rates is not particularly difficult, and it is a key skill, especially in the 21st century with international travel becoming more and more common. There are two steps you need to follow. First, determine the price of a currency. Next, determine its value. The combination of these two will allow you to compare currencies.

Exchange Rate

Find the current exchange rate using an online source like XE (see Resource). Currencies are commodities like any other: As supply of one goes up, demand goes down and with it its price, and vice versa. This means that exchange rates can fluctuate by small amounts every few minutes, so you need to be informed.

Price

Input your desired amount of currency into an exchange rate calculator or figure it out yourself. For example, the Aug. 30, 2010, exchange rate between the U.S. dollar and the New Zealand dollar is roughly 1.4. This means that to exchange from U.S. dollars to New Zealand dollars, you need to multiply by 1.4. So if you have $100 (US) it will become $140 (NZ).

Value

This is not all, though. You need to find how much your currency is actually worth. An internationally accepted way of doing this is with the Big Mac Index, which examines the price of a Big Mac in every country with McDonald's restaurants. This allows you to compensate for different costs of living.

So a Big Mac in New Zealand costs $4.90 (NZ) and a Big Mac in the U.S. costs $3.57. However, $3.57 x 1.4 is $5. In terms of actual value, your U.S. dollar is actually worth a little less than 1.4 because the cost of living in New Zealand is higher than it is in the U.S.

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