What is currency conversion

Conversion is the exchange of the national currency of one state for the national currency of another. First of all, this financial operation helps develop relations and regulate issues at the foreign policy level. In addition, conversion enables cooperation between companies located in different countries, as well as the purchase of goods abroad.

Sravnim24 editorial team
Imil Tkarev

Contents

Currency conversion in simple terms

currency conversion money exchange

All currencies can be divided into two groups:

Freely convertible currencies (FCC). These include currencies that can be exchanged for the monetary unit of any other country. There are very few such currencies, and the most well-known to us are the US dollar and the euro.
Partially convertible currencies. These are currencies that can only be exchanged for the monetary units of specific countries. These include, among others, the Russian ruble.

What is a currency converter

A currency converter, in turn, is an online tool that allows regular users to find current exchange rates with just a couple of clicks. Most converters are quite basic and allow real-time currency conversion based on current Central Bank data. Some converters, however, such as the one on the Banki.ru website, allow users to find the exchange rate relevant to any date of interest. Such tools are very convenient for people who are planning a vacation in another country and want to check the current exchange rate.

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Types of currency conversion

There are two types of currency conversion: cash and cashless. Both are widely used by individuals, so let's look at each method in a bit more detail.

By cash

You can exchange money in cash at ATMs, exchange offices, and credit institution branches. The offices of any currency exchange location or bank quote two types of rates:

Purchase rate. This is the price at which the exchange office is ready to buy the currency from you.
Sale rate. This is the price at which the bank is ready to sell the foreign currency to you.

Note.

The difference between these rates constitutes the exchange office's profit.

Cashless

Cashless conversion is available via electronic wallets or in the client's online banking profile. The second method is certainly the most convenient and fastest, and therefore the most common. If you pay for a purchase in a country whose currency differs from the one stored in your account, the intermediary bank automatically converts it at the current rate.

List of countries with freely convertible currencies

The fact that a currency can be converted into any other monetary unit indicates that the country is economically developed. Although every state strives to make its currency freely convertible, today there are only 18 FCCs:

US Dollar — United States of America.
Euro — the national currency of 19 eurozone states and 12 European countries.
Pound Sterling — England, Scotland, Wales, Northern Ireland.
Swiss Franc — Switzerland, Liechtenstein.
Norwegian Krone — Norway.
Danish Krone — Denmark, Greenland, Faroe Islands.
New Shekel — Israel.
Yen — Japan.
Canadian Dollar — Canada.
Singapore Dollar — Singapore.
Australian Dollar — Australia, some island nations in the Pacific Ocean.
Hong Kong Dollar — Hong Kong.
Peso — Mexico.
Won — South Korea.
Forint — Hungary.
Rand — South Africa.
New Zealand Dollar — New Zealand, Niue, Cook Islands, Tokelau, Pitcairn.
Swedish Krona — Sweden.

Why freely convertible currencies are beneficial for states

Countries with freely convertible currency have features compared to other states:

First of all, they have the opportunity to develop foreign trade, which favorably affects the countries' economies.
Import and export of goods in such countries is most simplified and fast.
States with FCC get the opportunity to conduct instant financial transactions among themselves.
Such countries are stable at the political level.
They are also stable in monetary and credit terms.
There is an opportunity to create gold and foreign exchange reserves.
Annual inflation in such countries is negligible.

How to convert money

As a rule, ordinary citizens convert currency more often for free travel in a foreign country or to pay for purchases. To avoid losing a lot of money when exchanging currency, we recommend following these instructions:

find out the amount you want to receive at the end (that is, after conversion);
analyze exchange rates at various locations and find the most profitable one (you do not have to do this manually, you can use special services);
check the conversion commission fee.

Conversion fee

There is no single fixed commission for currency conversion. This means banks and exchange offices can independently set the price for currency exchange. Also, the commission may vary depending on the type of conversion.

Note.

As a rule, cashless exchange is cheaper. This is explained by the fact that banks strive to have as many clients as possible switch to remote servicing.

When conversion might be needed

Ordinary citizens do not use currency conversion as often as international organizations. You may need an exchange in the following cases:

To exchange money for personal purposes. For example, for savings.
To pay off a foreign currency loan.
To recalculate foreign currency deposits.
To conduct international account operations.

Thus, you can convert money online, just like any other account operations. Moreover, cashless currency exchange is often more profitable. Special services—currency converters—will help you find the current exchange rate and locate the best exchange offices.