# Everything you need to know about exchange rates

1 – What is the interbank exchange rate? The interbank rate is essentially the value of one currency compared to another when an exchange transaction takes place between two financial establishments. The rate varies constantly under the influence of supply and demand. For example, we talk about the EUR/CHF rate to indicate the exchange rate,…

## 1 – What is the interbank exchange rate?

The interbank rate is essentially the value of one currency compared to another when an exchange transaction takes place between two financial establishments. The rate varies constantly under the influence of supply and demand.

For example, we talk about the EUR/CHF rate to indicate the exchange rate, or interbank rate, between the euro and the Swiss franc. In this case, if the interbank rate is 1.08, it means that for every euro, the market will pay 1.08 francs.

Since the market is based on supply and demand, the rate will vary depending on the number of buyers and sellers.

For example, if the banks (and the market players that use them) decide to buy many euros against francs, the rate will go up. This means you will no longer get 1.08 CHF but perhaps 1.10 CHF per euro.

Conversely, if there are a lot of euro sellers, the EUR/CHF rate will drop, so you may only get 1.06 CHF for your euro instead of 1.08. The price is therefore a balance between sellers and purchasers concerning a given currency, as dictated by the law of supply and demand.

The number of buyers and sellers changes constantly. It can be affected by a number of external factors, such as a trade agreement, a war, a peace treaty, a presidential election, a health crisis… any kind of event or information that might impact investors’ choices.

The interbank rate is indicative, rather than a rate that will apply to your transaction. Nobody, whether natural or legal persons, can use this rate apart from banks. The rate for other users is of course subject to a margin, set by each financial intermediary.

## 2 – How do margins work?

When you carry out an exchange transaction, whether it is a payment with your credit card in another currency, or a currency exchange transaction through your bank or an intermediary such as b-sharpe, a margin is applied to the exchange rate.

The margin is a fee for the intermediary who handles the transaction. It can range from a few points to several percent depending on the amounts involved and the intermediaries carrying out the transaction. It is often very difficult to find out in advance the margin that will be applied to a given transaction, except with b-sharpe!

It is however possible to give a general estimate of the margin. For a transaction converting 10,000 CHF into euros: market players apply a margin that varies between 1.5% and 2%, physical bureaux de change tend to apply a margin of between 0.75% and **2%** with online intermediaries such as b-sharpe situated at 0.5%.

Taking these factors into account, the calculation of the rate for your transaction is as follows: Intermediary rate = Interbank rate X (1+ intermediary rate)

Therefore,

For an interbank rate of 1.12

Bank rate = 1.12 X (1+0.02) = 1.12 X 1.02 = 1.1424

Physical bureau de change rate = 1.12 X (1+0.009) = 1.12 X 1.009 = 1.1301

b-sharpe = 1.12 X (1+0.005) = 1.12 X 1.005 = 1.1256

Since the rate changes constantly, we can represent this using the graph below:

## 3 – How many euros will I get?

If you want to know at any given time how many euros you will receive for a Swiss franc/euro transaction, you just need to understand the mechanism explained above. The EUR/CHF rate, which is calculated depending on your intermediary, and which changes constantly, means precisely « I will need to pay XX.XX CHF to get 1€. »

If we take the earlier example with an interbank rate of 1.12 for 10,000 CHF, this is the calculation you should use to find out how many euros you will receive, broken down by intermediary:

Through your bank:

- Bank rate = 1.12 X (1+0.02) = 1.12 X 1.02 = 1.1424
- Amount: 10.000 CHF
- Amount received = 10.000 / 1.1424 =
**8753.50 €**

Through a physical bureau de change:

- Physical exchange rate = 1.12 X (1+0.009) = 1.12 X 1.009 = 1.1301
- Amount: 10,000 CHF
- Amount received = 10,000 / 1.1301 =
**8848.77 €**

Through b-sharpe:

- b-sharpe rate = 1.12 X (1+0.005) = 1.12 X 1.005 = 1.1256
- Amount: 10,000 CHF
- Amount received = 10,000 / 1.1256 =
**8884.15 €**

The variation in the amount received is entirely due to the margin applied to the transaction. The interbank rate, even though it changes constantly, will be the same for all intermediaries at a given moment.

If the operation is ‘the other way round’, from € to CHF, the principle is the same, but the interbank rate should be divided rather than multiplied, and the amount sent should be multiplied by that rate. Therefore:

For an interbank rate of 1.12

b-sharpe rate = 1.12 / 1.005 = 1.1144

Which means that each euro sent you will receive 1.1144 CHF, and for 10,000 €, you will receive 10,000 X 1.1144 = 11,144 CHF.

All our margins are available here: https://www.b-sharpe.com/en/pricing/