Exchange rates give you an appraisal of how much is your currency worth in comparison to other currencies. For example, you can get 10 South African ZAR for your 1 USD at the present stage. These rates are controlled by the foreign exchange market (FOREX) which in itself is a market open to buy and sell different currencies. You are more likely to apply these rates through retail exchange market.
Retail Exchange market
Whenever you need travel to strange country or purchase goods from foreign, it is asked of you to exchange your nation’s money against the local money. For instance, if you travel from US to Europe it is necessary that you accept Euros. This rate at which you can convert your money to foreign money is the Exchange rate. You can exchange your money when you reach your destination or at the airport or through your local money changer. While in a retail market, you will come across two different types of rates – the buying rate and other being the selling rates. The buying rate is the rate at which the trader will buy your currency and the selling rate is one at which he will sell you a currency. Of course, there will be difference between the purchasing and selling rates, where do you think will they earn their commission from? It’s from this conflict that draws up the trader’s allowance.