Wednesday, May 16, 2007
Money Shopping at the Foreign Exchange (Part 1 of 2) - Leaving on a Jet Plane
You're planning a trip to Europe and realize you'll need cash for things like cab fare, tips and meals. Where do you go? You'll have to price compare to get the most bang out of your buck. Or if you're buying money for London, to get the most 'Pounds' for your buck.
First find out the current exchange rate. Under the Quick Links section of this blog, use the currency calculator. The exchange rate you find is a measure. You will not get the same rate at banks or currency exchange bureaus. The fact is these institutions will buy low and sell high any currency exchange transaction. This is the reason why you lose money each time you exchange the same currency. More about this in Part 2 of this post. So using the British Pound as an example, you find the current rate of exchange is 1 British Pound equal to US$1.97. (Note: all rates in this post are as of 5/16/07).
Next consider how much cash you will need. You estimate 470 British Pounds (GBP) for a trip to London. The current exchange rate shows that is equal to US$930.
Now you have to check who has the best 'buy' rates for foreign currency. At the American Express exchange bureau, GBP470 will cost you US$995. You now see where the financial institution is earning some money since you know the current exchange rate. In addition American Express will add $13 for UPS 2nd day service and a $15 service fee. The total cost of the exchange: US$1,023.
Next you try your bank where you have an account. Call the bank's foreign currency exchange office (all major banking institutions should have one) and ask for their 'buy' rate for British Pounds. Your bank uses a 'buy' exchange rate of 2.0828. The GBP470 will cost you US$979. A little better than American Express and closer to the current exchange rate. But wait a minute, the bank will add a $1 service fee plus charge you one percent of the total U.S. dollars being exchanged which would be $9.80. The total cost of the exchange: US$989. Your bank requires 5-7 business days to process your order.
Do you stop there. You should try at least one more source. Remember all inquiries should be made within a day as the rate fluctuates and is different among financial instutions. Like playing the stock market, you always have the opportunity to wait and see if the 'buy' rate improves to your benefit.
You call another bank whose buy rate is 2.0126. GBP470 will now cost you US$946. This bank only adds a US$10 service fee. The total cost of the exchange: US$956. The bank will have your order ready in two working days. You feel happy with this exchage and make the purchase at this second bank.
It is your job to do your research to find the most favorable exchange rate and not just be giving money away. The next post will deal with any left over foreign currency after your trip is over.