You have saved £50 for a summer trip to Spain, but the shops there price everything in euros, not pounds. Before you can buy a single ice cream you have to answer one question: how many euros is your £50 actually worth? That is where exchange rates come in.
What is a currency?
A currency is the money a country uses. The UK uses the pound sterling, written £ and coded GBP. Much of Europe uses the euro (EUR, €), and the United States uses the dollar (USD, $). Each is a separate kind of money, so to spend one in another country you must swap it. There are more than 150 currencies in the world, and their values are always shifting against one another.
Exchange rates
An exchange rate tells you how much of one currency you get for another. If the rate is £1 = €1.15, then each pound buys 1.15 euros. To convert, you multiply or divide by the rate:
- Pounds to euros: multiply by 1.15.
- Euros to pounds: divide by 1.15.
Rates change from day to day because currencies are bought and sold constantly, so the euros your £50 buys in July might differ from what it buys in December. When you hear "the pound is strong", it means each pound buys more foreign money than before, which is good news for travellers but tougher for shops that sell abroad.
Worked conversions
| Convert | Rate | Working | Result |
|---|---|---|---|
| £50 to euros | £1 = €1.15 | 50 × 1.15 | €57.50 |
| €23 to pounds | £1 = €1.15 | 23 ÷ 1.15 | £20 |
| £40 to dollars | £1 = $1.25 | 40 × 1.25 | $50 |
Why prices differ
- Between shops: different costs, rents and profit margins mean the same item can be priced differently.
- Between countries: taxes, wages, transport and local demand all change the price of the same product.
- Buying abroad or online: watch for fees — some cards add a charge on foreign spending, and "free" currency stalls often hide a poor rate. The advertised price is not always the final price.