Economy and interest rates · updated October 21, 2026
What is an exchange rate and how does it change your return on foreign stocks
An exchange rate shows how many units of one currency you get for one unit of another. A EUR/USD rate of 1.10 means 1.10 dollars for one euro. When you buy stocks or ETFs in another currency, the exchange rate is part of your return, for better or worse.
The exchange rate formula
- The rate
- The price of one unit of a currency in another. Central banks publish daily reference rates (the ECB for the euro, for example), and banks and brokers apply their own rate, with a markup.
- The currency pair
- Written as EUR/USD: the first currency is the one you buy, the second the one you pay in.
Worked example
You want to change €1,000 into dollars at a rate of 1.10.
Your bank or broker usually gives you a slightly worse rate than the reference one. The difference is the cost of the conversion.
Worth knowing
The exchange rate matters for foreign stocks. If a US stock rises 10% in dollars but the dollar falls 5% against your currency, your gain in your own currency is about 4.5% (1.10 × 0.95 = 1.045).
When the exchange rate can fool you
The hidden fee: on conversion, many banks and brokers add a markup of 0.5% - 2% over the reference rate. On large amounts, it adds up. Currency risk cuts both ways: a foreign currency that strengthens increases your gain.
Related terms
Learn it in the Academy
Questions about the exchange rate
Where do I find the official rate?
On the central bank's website. The ECB publishes euro reference rates every working day around 16:00 Central European time.
Is it worth opening a brokerage account in dollars?
If you often invest abroad, an account in that currency spares you repeated conversions. The broker's exchange fee is what matters.
These explanations are for information only. They are not a recommendation to buy or sell.
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