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Understanding Currency Exchange Rates
If you are a savvy international traveler, one who has read up on all the things you are supposed to do and not do when you go to a foreign country, then you have probably already heard that making sure you buy foreign currency before your trip is one of the best ways you can prevent money loss and travel stress.
While it is often as easy as paying for the correct currency and having it delivered to your door, it is also important to understand the process of currency exchange as best you can so you can make sure you are getting yourself the best rates possible. Below is a list of info that will hopefully give you the best experience when you go to buy foreign currency.
1. When you see the term “sell rate,” this is referring to the rate at which the foreign currency is being sold. As with most things involving money, the rate at which currency is sold depends upon the demand or lack thereof – determined by things like economic success or inflation – and concordantly the appreciation or depreciation for the currency needed.
2. Parallel to the sell rate is the “buy rate,” which is the rate at which an exchange service will buy foreign currency back from you.
3. When shopping for a currency exchanger, it is important to not confuse the “spot rate” for your sell or “buy rates. Sometimes called the “interbank rate,” this is the rate banks charge each other when money is traded or exchanged in significant amount between them. As a tourist, you will not be able to buy currency at this rate. It is simpler to think of the “spot rate” as a wholesale price and the sell/buy rate as the retail price.
4. Should you come across the term “spread,” it will likely be in reference to the difference between the buy and sell rates. For example: Jack is going to France and buys €5,000 for $7,000. Jill comes home from France and sells the €5,000 she has and receives $6,500. That would make the “spread” $500.
5. Unless you are a wayward wanderer, then you probably won’t need to know what a cross rate is, but it is still good to know the term to avoid confusion. The “cross rate” is the exchange rate between two currencies when neither are the official currency of the current country such as if you wanted to change dollars for yen while travelling in Brazil.
6. “Commission” is an important term to keep a look out for whenever you use an exchange service. This is the term used for the fee that services charge for providing an exchange, which Exchange of America never charges you.
Buying foreign currency can be confusing for anyone, whether you happen to be familiar with the nature of exchange rates or you find anything to do with money and math as something to avoid at all costs. But there are plenty of online services that make the process much smoother for their customers. Check out http://www.xchangeofamerica.com/ to find out more.