For instance, you might be in the UK, and about to spend a week in France. In this case, you need euros. The foreign exchange rate from pounds into euros determines the rate at which you sell pounds to buy euros. If the pound to euro rate is 1.25, you then buy 1.25 euros for each pound that you sell.

Furthermore, the foreign exchange rate changes, depending on what’s happening in the world. The pound to euro rate might decrease to 1.20, in which case when you sell pounds to buy euros, you get five cents less for each pound.

And of course, you buy and sell currencies at different rates. So while the pound to euro rate might be 1.25, the pound to US dollar rate might be 1.55. This means you buy 30 cents more dollars for each pound you sell than euros. This suggests that the euro is a stronger currency against the pound than the dollar.

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