Definition
The price of one currency in another, such as how many Mexican pesos or Philippine pesos one U.S. dollar buys.
What it means
An exchange rate tells you how much of one currency you get for another. Market rates, the ones shown in financial news, change constantly. Banks, card networks and money transfer companies usually give customers a rate that is less favorable than the market rate and keep the difference, called a markup or spread, in addition to any stated fee. That is why a transfer advertised with no fee can still cost money. For remittances, federal rules require providers to show the exchange rate they will use and the amount the recipient will receive before you pay. When paying abroad by card, choosing to be charged in U.S. dollars at the terminal, known as dynamic currency conversion, often uses a worse rate than letting your card convert.
Example
If the market rate is 18.00 pesos per dollar and a provider offers 17.55, sending $400 delivers 7,020 pesos instead of 7,200, a hidden cost of 180 pesos, about $10 or 2.5%.
Illustrative numbers only. Your situation will differ.