Currency Calculators are essentially currency converters. They are used mainly to determine how much a currency is worth in terms of the currency of another country. They are simple but essential business tools used by travelers and traders who transact business or conduct activities in foreign soil. These tools are used for the quick conversion of one currency into another based on prevailing rates of exchange.
A currency calculator, however, gives the user just an approximate value of the conversion based on the rates of exchange used. They are often used to provide the user a ball park figure of how much of his own currency he will need to travel or do business in their destination countries. The actual conversion value however may be way off the value you get from any online calculator for a number of reasons. Among them are:
- Currency calculators use the prevailing spot market exchange rates which are essentially considered wholesale rates while the rates used by banks and money changers are retail rates.
- Banks and Money Changers always build in their profit margins into their rates so much so that there is often a wide margin between their buying and selling rates.
- In some instances, the rates are arbitrarily set by the banks or the money changers without regards to prevailing rates of exchange.
There are also certain limitations to what a currency calculator can deliver. Every conversion made is only as good as the rates of exchange used. While all of these online calculators get their feeds from the spot currency market, their feeds may originate from different terminals connecting different foreign currency dealers and market makers. As a result, one online calculator may give a different conversion value than another which receives its data feed from a different terminal. However, the difference may just be a few pips although they can add up resulting in a significant difference in conversion values as more transactions are made. In the first place, these calculators are meant to just give you a reference value to work on since the actual conversion can be way off the mark for a number of reasons as stated above.
Currency calculators should not be mistaken for the forex calculators used by forex traders. Forex calculators come in various forms and serve specific trading purposes while the former solely used by international travelers and global traders of goods. They may use the same rates of exchange based on spot market rates but the bottom line is there is hardly any actual exchange made based on the figures culled from them. And the reason is simple – those who use it often ends up changing their currencies with local banks or money changers who have to build their profit margins into their rates.
A currency calculator is useful in a lot of ways. It gives you an idea of how much of your own currency you need to buy a specific item from another country or it can help you determine how much money you will need when traveling abroad. It can also tell you how much your foreign investment is currently worth.