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Would someone please explain how the exchange rate works?

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May 31st, 2010, 07:29 AM
  #1
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Would someone please explain how the exchange rate works?

Ok, I'm a well seasoned traveler, but for some reason I need a bit of an explanation about how the exchange rate works or just some clarification.

With the Euro / U.S. Dollar exchange rate being so good, I thought I would make out pretty good with changing U.S. Dollars for Euros. Here's why I'm asking for clarification. On Saturday I went to my closest American Express office. Before I went, I checked the exchange rate on Oanda.com and saw that it was $1.23 for 1 Euro. When I got my money changed, the slip of paper indicated that the exchange rate was $1.348146159 (ok, so rounding up it was about $1.35). What am I missing here? Why was Amex 12 cents higher than what I saw on Oanda? Would someone please clarify this for me? Thanks in advance.
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May 31st, 2010, 07:40 AM
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They are charging a commission, of course, for providing you with foreign currency in the US. And you will never get the "bank" rate of exchange.
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May 31st, 2010, 07:46 AM
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There is the exchange rate in the business pages of your local paper, the exchange rate at the bank counter, the exchange rate at the Amex office, and the exchange rate at an ATM in Europe. All are different.

The first in not available to you, it is the international bank exhancge rate.

The second one includes the charges the bank will add (get currency to the branch,etc...). Seems to be about ~5%

The third one includes the charges the Amex adds to make a profit. Which is why I always say that there are two parts to every currency transaction. The Bureaux that say "use us, no fees!!!" just make it up in a worst exchage rate.

The last is a rate that your bank will charge to convert a withdrawal in euro to dollars out of your account. Add to that your banks service charge. In the end, it is a bit less than buying euro at home at the bank.
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May 31st, 2010, 07:49 AM
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AE is in a business to make profit.

What business process enables AE to be in the money exchange business? -- by keeping the difference between what they pay to get the Euro e.g. ~$1.23 and what the retail customers pay, ~$1.35.

You can reduce the difference between these two number, the premium you have to pay, by doing an exchange in more competitive market. Using an ATM in a Euro currency country is one such way.
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May 31st, 2010, 08:22 AM
  #5
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Thanks to all who have clarified this for me.
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May 31st, 2010, 08:35 AM
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Also, be sure to check the rate your bank charges to process your ATM withdrawals overseas. My bank makes no charge.

For credit cards, Capitol one, for instance, charges no foreign exchange fees. Schwab does not charge, either, for some types of accounts, I believe.
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May 31st, 2010, 11:05 AM
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Pure capitalism.
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May 31st, 2010, 11:15 AM
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OK -- did you read any threads about this before jumping in and buying those €??

Not trying to pile on --- but that is exactly what we post on probably 4 threads a day, every day, 365 days a year. Maybe a slight exaggeration but not by much.

Stocking up on currency to beat the exchange is a losers proposition. There are two or three fodorites who regularly recommend doing what you did -- but MANY others try to explain why it is generally a bad idea. Unfortunately you've learned an expensive lesson.

98% (probably more) of the time, using an ATM in Europe is a better deal.
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May 31st, 2010, 11:32 AM
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You are not "exchanging" - you are actually selling one currency and buying another... . Someone is making money in the process!
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May 31st, 2010, 12:05 PM
  #10
 
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The published rate of exchange is the Interbank Exchange rate - the one banks using when exchanging large sums - in the millions of dollars. If you use your credit card or pull cash from an ATM with your debit card you will get that rate plus a small percentage - typically 1 to 3% charged by your bank for the service. They can charge this small fee since you are still operating within the electronic banking system.

If you try to exchange cash you have taken yourself out of the electronic banking system - requiring a lot more personal time and attention - and you will lose significantly in the rate of exchange or in fees or both.

This is why you should never exchange cash (or, god forbid, travelers checks).
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May 31st, 2010, 12:06 PM
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Sorry - basically you are using a lot more time and attention of staff - and are paying for it.

Think of it as valet parking in a fou fou garage versus parking yourself on the street and putting a few coins in a meter.
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May 31st, 2010, 12:27 PM
  #12
 
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Best thing is to avoid the Bureau de Change in any Airports or Train stations as the rate of exchange you get will be very poor. Either go with your bank or currency exchange office and beware of "no commission" deals as that means the rate they offer will be worse for you to cover the commisison they state they do not charge. They will make their spread regardless, just be sure to get the one closest to the real exchange rate. Check out the BBC or Reuters etc for the latest exchanges rates (usually delayed by 30 mins but good enough).
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May 31st, 2010, 01:00 PM
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"Either go with your bank or currency exchange office"

Oh fer cryin out loud, here we go again. No - Go w/ an ATM machine
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May 31st, 2010, 01:20 PM
  #14
 
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I guess the other question for the OP is--are you going RIGHT now. The Euro may go even lower with the current crisis.
And of course, Janis is correct. Go to an ATM at the airport. I do like to have about 100E before I go and just bite the bullet and get it at my departure airport.
You NEVER get the "real exchange rate" noted in the post above--you may get close but it is a commercial rate not for travellers.
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May 31st, 2010, 06:38 PM
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@janisj & Gretchen - I've been watching the fluctuation of the Euro for some time and decided that now was the time to get them. The reason being is that I will be renting an apartment in Paris in July and there's no telling how the exchange rate will be when that rolls around. I would rather get the money now than wait until later.

The renter does not accept credit cards (even though his listing has the credit card icons there), but does accept PayPal - the only catch being a +4% paypal costs, which would have added an extra 50 Euros on to our final total. So please, don't beat me over the head for this post, ok? (which is how I kinda felt, janisj, from your first reply).

Folks, I've been a member of this forum for quite some time, so I'm not some newbie traveler. I just wanted some clarification as to why I saw one rate listed on Oanda and why I got what I got at Amex. In the past I really didn't scrutinize the exchange rate, but with the economy here and over there being as it is, I'm being a bit more conservative with my money and looking for a good deal. Last weekend at the Amex office in my city, they sold out of Euros because of how low the rate was.

Anyways, again, thanks to all who provided some rationale for why I got what I got.
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May 31st, 2010, 06:54 PM
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We just bought Euro for 1.301 when it was 1.23+ at Wells Fargo. They have certain banks that have foreign money on hand all of the time. You can find those locations on their website. I am not sure if you have to have an account with Wells Fargo or not.

We almost always use the ATMs but thought since our trip isn't until September we would buy Euro now as the rate could easily go up. Then again, it may go down. It is always a gamble.
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May 31st, 2010, 06:59 PM
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I also bought 600 euros to pay for my immediate rentals in Portugal and Spain. When the euro was 1.23 I paid about $1.31 per euro.
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May 31st, 2010, 07:10 PM
  #18
 
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If you need a backup system to exchange money/travelers' checks in Paris, they get the same rate of exchange, then go on www.bureaux-de-change.com and then click on, "Site Plan" and scroll down to where the district numbers start and then there will be a long list of exchange places grouped by district. You'll need to shop around.

However, Multi Change usually gives a decent rate. I paid 1.39 for Euro, month before last, and the friend with me paid 1.36 for a Euro on his ATM card. I don't know if he had fees added or not as I only asked him, when he got home, to e-mail me the exchange rate that he had gotten.

So, it's always good to have a backup system even is you plan to use an ATM card as one never knows what might happen. I ran into a man in Paris, month before last, who needed to exchange $1,000 into Euro. I don't know what his situation was. Who knows, maybe the ATM card didn't work. I just know that he needed to exchange cash. I saw him at one exchange place that was charging quite a bit and then overheard him say that he needed another place. I then pointed him in the right direction. I didn't lecture him. Have a great trip. Happy Travels!
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May 31st, 2010, 07:24 PM
  #19
 
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"I've been watching the fluctuation of the Euro for some time and decided that now was the time to get them. The reason being is that I will be renting an apartment in Paris in July and there's no telling how the exchange rate will be when that rolls around. I would rather get the money now than wait until later."

Okay - but you do realize the € would have to rise more than .07¢ for you to break even? And if the € falls, which is probably more likely (but who knows), you will have lost even more on the exchange plus lost the use of your cash in the meantime . . . .

If you truly "just wanted some clarification as to why I saw one rate listed on Oanda and why I got what I got at Amex." ---- There is no mystery to why. That is the way it works. You cannot get foreign currency in the States at a rate anywhere close to the 'official' rates, which has been explained countless times on these forums.
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May 31st, 2010, 08:43 PM
  #20
 
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>>>However, Multi Change usually gives a decent rate. I paid 1.39 for Euro, month before last, and the friend with me paid 1.36 for a Euro on his ATM card.<<<

Without knowing the exact date each of you got money, you can't really say if it was a good rate or not. I entered a random date in March and the interbank rate was 1.32-1.33 (it changes many times during a day). When I get money from an ATM in Europe, I get the interbank rate you see in the paper or on Oanda/XE. My credit union didn't tack on any additional fees until recently when they added the 1%. Even if I make two withdrawals during the day, one early and one late, I will likely have two different rates on my bank statement when I get home as the rate will have fluctuated during the day. To look up rates for past dates, Oanda has a history calculator. I always compare my bank statement with the history calculator when I return from a trip.
http://www.oanda.com/currency/historical-rates

>>>who needed to exchange $1,000 into Euro. I don't know what his situation was. Who knows, maybe the ATM card didn't work.<<<

I don't think that would have anything to do with an ATM. Sounds like he brought wads of cash from the states to exchange instead of using the ATM.

>>>I checked the exchange rate on Oanda.com and saw that it was $1.23 for 1 Euro. When I got my money changed, the slip of paper indicated that the exchange rate was $1.348146159 (ok, so rounding up it was about $1.35). What am I missing here? <<<

You really weren't missing anything, just paying AmEx a .12 commission per dollar or $12 per 100 exchanged. Places that say they don't charge a fee just adjust the rate to get their fee. Some do both. It's best to ask before exchanging. Did AmEx tell you there weren't any fees?
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