Understanding Exchange Rates
Exchange rate explainedLearn what exchange rates really are, what “mid-market” means, and how small differences add up.
Understanding Exchange Rates
Exchange rates sound complicated, but they’re really just a price tag for money. This guide explains what that price is, how companies change it, and how it affects what your family actually receives.
10-second definition
An exchange rate is simply:
“How much of currency B do I get for 1 unit of currency A?”
Example: 1 CAD = 85 BDT (this is the “price” of CAD in BDT).
Step 1: What is a currency pair?
Exchange rates are usually written as a pair, like CAD/BDT or CAD to BDT. Think of it as a simple question:
Example: CAD to BDT
Imagine the rate is:
1 CAD = 85 BDT
This just means:
- If you send $1 CAD, your family gets 85 BDT (before fees).
- If you send $100 CAD, they get 8,500 BDT.
- If the rate moves to 1 CAD = 90 BDT, they get more for the same money.
Visual: think of it like a store price
CAD = your shopping money. BDT = items in the store.
If each CAD “buys” more BDT, your family gets more on the other side. If each CAD “buys” less BDT, they get less.
Step 2: What is the “mid-market” rate?
You’ll often hear “mid-market rate” or see the rate on Google or XE. This is like the real, neutral rate in the middle of what big banks pay each other.
Think of mid-market rate as the “fair” rate
- It’s the rate you see when you Google “CAD to BDT”.
- It doesn’t include any profit for a bank or transfer company.
- It’s like the “wholesale” price in a store.
Your provider’s rate is usually different
- Banks and transfer services often give you a slightly worse rate.
- The difference between mid-market and their rate is called the markup.
- This markup is a hidden fee – they profit from that gap.
Simple example: mid-market vs provider
Mid-market rate (Google):
1 CAD = 85 BDT
Provider A:
1 CAD = 83 BDT (keeps 2 BDT per CAD as hidden margin)
Provider B:
1 CAD = 84.8 BDT (very close to mid-market âžś better for you)
The closer a provider’s rate is to the mid-market rate, the less hidden fee you pay.
Step 3: Why tiny rate differences = big money for your family
Even a small change in the rate can make a big difference, especially for larger transfers. Here’s a simple table:
| Amount you send (CAD) | Rate: 1 CAD = 83 BDT | Rate: 1 CAD = 85 BDT | Extra BDT your family gets |
|---|---|---|---|
| $500 | 41,500 BDT | 42,500 BDT | +1,000 BDT |
| $1,000 | 83,000 BDT | 85,000 BDT | +2,000 BDT |
| $2,500 | 207,500 BDT | 212,500 BDT | +5,000 BDT |
Key point: A “tiny” difference in the rate can equal groceries or bills for your family. That’s why exchange rates matter just as much as the visible fee.
Step 4: Why do exchange rates keep changing?
You might notice that the rate today is not the same as last week. You don’t need to be an economist – just remember these simple points:
1. Supply and demand
When more people and companies want a currency, its price (exchange rate) usually goes up. When fewer people want it, the price usually goes down.
2. News & events
Things like elections, interest rate changes, or big economic news can move exchange rates quickly, sometimes in a single day.
3. Market opening hours
Currency markets trade around the world. Rates can adjust more when large markets (like London or New York) are open.
For everyday senders, you don’t need to “time the market” perfectly. But if the rate is extremely low one day, it can be worth waiting if your transfer is not urgent.
Step 5: Easy checklist before you send
- Google the rate (e.g. “CAD to BDT”) and note the mid-market rate.
- Open at least 2–3 money transfer providers or banks.
- Enter the same send amount (e.g. $1,000 CAD) in each tool.
- Compare: how much the receiver gets, not just the fee.
- Choose the provider that is closest to the mid-market rate and has reasonable fees.
- Save your favourites for next time to compare faster.