An exchange rate is the ratio between two currencies
An exchange rate is the ratio at which one country's money is exchanged for another's. A KRW/USD exchange rate (won per dollar) of 1,300 means it takes KRW 1,300 to get one dollar. Here the dollar, written second, is the base (one unit), and the won, written first, is the side that puts a price on it.
So it helps to think of the rate as a price tag on one dollar, in won. Just as an apple might cost KRW 1,300, the rate reads as one dollar costing KRW 1,300.
A rising exchange rate means a weaker won
This is where most of the confusion lies. When KRW/USD “rises” from 1,300 to 1,400, it takes more won to get one dollar, so the value of the won has actually fallen. This is called a weaker won and a stronger dollar.
Conversely, when the rate falls from 1,300 to 1,200, one dollar takes fewer won, so the value of the won has gone up. That is a stronger won.
The number gets bigger while the purchasing power of your money gets weaker, which runs against intuition. Remembering one line keeps the direction straight: a rising exchange rate means each won is worth less.
The rate on screen is not the rate you actually get
The rate shown in the news or in apps is usually the reference rate, the midpoint between the bid and the ask. The rate applied when you actually exchange money at a bank counter is different.
When you exchange won for dollar cash, the rate is set a little above the reference rate, and when you exchange dollar cash back into won, a little below it. This gap is called the spread, and it is the bank's share. The spread on cash exchange is generally wider than on remittances or card payments.
So even when the reference rate is 1,300, getting dollar cash costs more than that per dollar, and exchanging it back returns less. The actual rate varies by bank, method and preferential rate. The rates Jupick shows are market reference quotes, and the rates applied to actual exchanges and remittances depend on the rates posted by the institution you deal with.
What changes when the exchange rate moves
When the won weakens (the rate rises), import prices go up, because goods brought in for the same number of dollars take more won. Overseas travel and study abroad also cost more. Exporters, on the other hand, can benefit, since the same dollar revenue converts into a larger amount in won.
When the won strengthens (the rate falls), the opposite happens. Imported goods and overseas travel cost less, and the amount in won that exporters end up with shrinks. That is why exchange rates are tied to consumer prices, corporate earnings and even travel costs.
Jupick updates the dollar, yen, euro and yuan exchange rates daily. An exchange rate is an indicator of current state that shows today's and past exchange ratios. Jupick does not forecast future exchange rates and gives no advice to trade any currency. This content is for information only and is not investment advice.
Frequently asked questions
- What is an exchange rate?
- It is the ratio at which one country's money is exchanged for another's. A KRW/USD rate of 1,300 means it takes KRW 1,300 to get one dollar, so you can think of it as a price tag on one dollar, in won.
- When the KRW/USD exchange rate rises, has the won strengthened or weakened?
- It has weakened. A rise from 1,300 to 1,400 means one dollar takes more won, so the value of the won has fallen. This is called a weaker won and a stronger dollar. When the rate falls, the won has strengthened.
- What costs more when the exchange rate rises?
- When the won weakens (the rate rises), import prices go up and overseas travel and study abroad cost more. Exporters can benefit, because the same dollars convert into a larger amount in won. When the won strengthens, the opposite happens.