Visa currency exchange rates

Old Jul 23rd, 2002, 12:43 PM
Bob Brown
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Visa currency exchange rates

Does anybody out there know exactly and precisely how Visa comes up with its exchange rates when converting foreign credit card charges into US dollars?

Please note my use of the term exactly!

I have tried to find out this secret information from Visa International, but so far I have come up empty. Nobody at Visa who talks on the phone has any idea of how Visa determines its exchange rates.

I got curious when I looked at my most recent Visa bill that had quite a few conversions on it. Using newspaper rates and web site rates do not enable me to reconstruct the actual amount I was charged in US dollars.

I am close to the exact figures, but not right on it so to speak. So the question then arises: If Visa does not use the rate printed in the financial newspapers, what does it use? My guess is that Visa uses an average of the high and low rates for the day, but I don't know this for a fact. Or it may use some type of weighted average based on time quanta, or it might even derive a rate based on exponential smoothing of a continuous flow of daily exchange rate changes.

So that is the question: Exactly how does Visa calculate its credit card exchange rates? What is the magic formula??

This is a fine point type of question; not a general "Duhh! How do they do it?" type of inquiry.
Old Jul 23rd, 2002, 01:13 PM
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well Bob I don't know exactly so probably shouldn't post but my understanding of the general process is that international VISA converts to US dollars using the wholesale bank exchange rate and then that amount is sent to your local bank who is your card issuer. YOur card issuer may then add on its extra conversion fee, as you know. I would guess VISA gets an electronic feed of the exchange rate and the rate used is the one active at the time they do that. YOu are right that it could be some average for that day or something, but I wouldn't think you could figure it out from the newspaper or any other source because it may be different than VISA or posted at a different time.

Knowing the way most computer and bank transactions work, I would expect they are batched and done once a day or something. You know how there is a time cutoff each day as to when withdrawals or deposits are counted on that day or the next.

If you are within one percent, I would think that could be as good as you will get. Okay, I know I shouldn't have posted because I don't know the answer and I bet some guy around here (guess who) maybe does. You probably knew everything I said and I won't even ask why it matters if you are within one pct. I would not expect it to be based on an average over a long period or a regression line or anything like that, but the rate in effect when they did it.
Old Jul 23rd, 2002, 01:14 PM
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Is this the same Bob Brown who, only last week on the Canada forum, denied that he is obsessed with exchange rates and ATM fees?
Old Jul 23rd, 2002, 01:48 PM
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I do not know exactly how they come up with the so called exchange rate printed on purchases made in foreign countries. I have a procedure and guesses on how they do it so that I can evaluate which CC company is ripping me off more than another without having to know exactly how this is done.

First the uncertainty of when. When does this conversion takes place? My guess is that it is the posting date and not the transaction date as the conversion seem to match better that way. What does the date represent? European date or US date? Also at what time was this rate computed and how as you have mentioned.

Since these would probably never come to light to average consumers, I look at many tranactions to see where one CC company stands against another. I do not have control over what one particular company does. I do have choice in using certain card over another.

To this end, I compare the posted day rate they print on the statement against historial closing rate available on the Web. During the period where there is no clear sustained steep change in rate, the closing rate and CC card rate should be around each other. Considering unavoidable 1% charge imposed by Visa or MC, the rate on cc card should be "about" 1% over official rate. What I usually oberserve are differences like 0.87% - 1.3% - 1.25% - 1.13%. Then I deduce that this company probably is hitting me with only the 1% imposed by Visa or MC.

If I see a differences like 2.9% - 3.4% - 3.03% - 3.7%, then I suspect that they are charging me addition 2% on top of Visa and MC fee.
Old Jul 23rd, 2002, 01:54 PM
Al Godon
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Is it an obsession to want to know how things work? Why guess when you can know? It reminds of the kid in a chemistry lab who didn't know the formula for sulphuric acid. What he thought was H20 was H2S04.

I for one would like to know how and why people take my money.
Old Jul 23rd, 2002, 01:59 PM
Bob Brown
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The answer may be as simple as applying the exchange rate in effect at the time the transactions entered the banks portal computer and the transaction got a date time stamp. If the answer was obvious, I would have deduced it long ago. I cannot, and I don't want to waste any more time on it. There has got to be an answer; but it is probably locked up in some programmer's conversion routine.

Sorry if wanting to know precise answers sounds like an obsession.
If I am sick, I don't accept the answer "You have an infection." I want to know what it is that is making me sick.
How about you?

Old Jul 23rd, 2002, 04:41 PM
Bob C
Posts: n/a
Remember that the rate in the paper is the rate between the worlds largest banks. So if VISA even owns their own bank there will always be a charge to VISA for the exchange so you will never see the rate in the paper. The rate should be close.
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