Thursday, May 17, 2007

Money Shopping at the Foreign Exchange (Part 2 of 2) - Coming Home

Now you return home from London and you have 100 British Pounds (GBP) left over. You could sell the currency to your bank for US$188 at a rate of 1.883. At the bank where you purchased your foreign currency, you find the sell rate is 1.908 for US$191. Believe it or not you just lost US$13-$17 by first changing US dollars to British Pounds and finally back to US dollars at these financial institutions.

This is how it happened. Above it shows you'll get either US$191 or US$188 from the two banks. But if you look at the banks buy rate (see Part 1 of this post), you actually bought the money for US$208 and US$201, respectively when you first exchanged the American money into British Pounds.

Sound confusing? This is why when planning for a vacation at a foreign destination that you budget the actual foreign currency you may need. You have your credit card. Think of all the places where you can actually charge. Your credit card company will also have a fee when they change the foreign transaction into American dollars. But the convenience of using a credit card is worth it. All credit card companies must have their exchange rate policy available.

Carry some spare US currency. So if you feel you are running low when in a foreign city, you can go to a currency exchange and change only what you need. The alternative is using a credit or ATM card to withdraw cash from an ATM which is the current trend. If you go this route, you'll find it practical but first you need to check with your financial insitution to see if your credit or ATM card can be used abroad for cash withdrawals and for which financial networks. Also check what fees will be added for the transaction.

On the subject of foreign travelers checks: The only good reason to have them is if you lose them, they can be replaced. If you are carrying an unusual large amount of money, it makes sense to have travelers checks. However the exchange rate for foreign travelers checks is less favorable than a cash exchange. They are also a burden because you need to keep track of the number of each check and when and where you use them. In addition you will need to present your passport for verification to the merchant.


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