A Simple Guide to Money Exchange

Money exchange image 1234In some way or another, you will need to exchange your currency at one point in your life. When you start traveling, your credit card might not be accepted in all establishments. That said, it’s important that you know how to exchange your money, as it is a necessity these days, especially if you visit other countries. To get the best deal, and ensure your safety and security, here is a simple guide on money exchange by answering these questions and keeping in mind some tips:

What and how are currency exchange rates determined?

Currencies, similar to other financial products and the stock market, are part of a global marketplace called foreign exchange or forex, which runs for 24 hours. The value of one currency compared to the next fluctuates every second. To make a profit and earn from money exchange establishments, banks and currency vendors sell it at a rate inclusive of a foreign exchange margin and service fees.

Why does the value of money change?

Exchange rates are simply numbers to know the value of a particular currency. However, for example, the amount of one euro to one pound always and constantly changes every single day. Drivers that cause these changes in value depends on a few factors that affect the value of a specific currency:

  • Stability of the country’s government
  • Stability of the country’s economy
  • Country’s interest rate
  • Inflows and outflows of the country’s currency
  • Country’s debt (both public and government)
  • Trade terms with other countries
  • Market sentiment
  • Political issues within a country
  • State of the country
  • Good or bad governance of the country
  • Country’s inflation rates
  • Political sphere
  • Elections
  • Fiscal and monetary policies
  • Natural disasters and calamities

Money Exchange image 234567What are some basic terms in the exchange market?

When working with money exchanges, there are some technical terms that you should familiarize yourself with. Here is a simple guide on terms and their meanings:

  1. Sell Rate

The sell rate refers to the rate at which you can sell your foreign currency in exchange for the local one. For example, if you go to Paris, you will exchange your local currency for euros at the sell rate.

  1. Buy Rate

On the other hand, the buy rate is the rate wherein the foreign currency carried by travelers is bought in exchange for the local currency. For example, if you return to England from the United States, you will exchange your pound back to dollars at the buy rate.

  1. Spot Rate

The spot rate is more known as the interbank rate. This is the rate that banks charge another financial institution when trading large amounts of foreign currency. Businesses usually use the term spot rate when dealing with banks. This is not a tourist rate, so you cannot buy a foreign currency at this rate. Similarly, the rates usually shown in newspapers or broadcast media are the interbank rates. These are not the rates that you use for money exchange as an individual.

  1. Spread

The spread is the difference between the sell and buy rates and the spot rate. This is where the money changer or bank tucks in their foreign exchange margins.

  1. Commission

The commission is what we call the fees that foreign exchange providers charge as service fees to convert one currency to another.

Why do these rates matter?

Changing rates matters because by looking at the exchange rates of each currency, you can evaluate whether one currency is stronger or weaker than the other.

For example, you have the currency pair GBP/USD. For this example, GBP will be the base currency, while USD will be the quote currency. If GBP/USD is at 1.5, then 1 GBP will buy you 1.5 USD. If it changed to 1.6, the pound would be stronger since it can now buy 1.6 USD instead of just 1.5 USD.

A stronger currency is good news and will also attract more investors to put their money in their country. Stronger currencies reflect good governance, economic stability, and power globally. If you want to find out additional information, you can learn more by researching this online.

Why do people buy a foreign currency?

A group of people trade foreign currency in the forex, which we call traders. They do this because they think they can profit as the rates fluctuate. This is very risky, especially if you don’t know the market. In the foreign exchange market, prices move by the second, and you need to be able to make sales before you lose that window.

Another reason why people buy foreign currency is to travel. Whenever you travel, you need to use the currency of the country you are in. For this reason, you must exchange your country’s currency for the currency you are traveling to. You can do this by going to the bank or money changers. People who want money immediately or for emergency reasons can make payments via credit card or withdraw from a foreign ATM. However, doing this will cause you more fees, which will be discussed later.

People also buy foreign currencies when their local currencies are becoming weaker. What people do is they exchange their local currencies with the stronger ones. This way, the value of your money is secured.

Where to exchange your money?

  1. Do not ever exchange currency at the airport

The convenience of exchanging your money at the airport can be very tempting. However, you must pay a high price for that convenience, which isn’t worth it. Airports know this convenience and charge higher margins for it. Instead, you can exchange it at different channels, which will be discussed later.

  1. Credit card transactions and ATM withdrawals overseas come at a fee

Foreign transaction fees depend on the bank whenever you withdraw foreign currency from an ATM. A better alternative would be exchanging currency at money changer kiosks. If you will be getting cash via ATM, make sure you get a large amount per withdrawal so the fees will be worth it.

On the other hand, using your credit card when traveling may be very convenient, which is what most people do to avoid carrying large sums of money. However, your credit card will also charge you a foreign transaction fee for every purchase. To get a good deal, comparing credit card transaction fees is important. Some cards also come with travel-related benefits such as discounts on hotels or flights and travel insurance. Be sure you do your research.

  1. Try to exchange money in pawnshops and money changers

Money changers in kiosks, sometimes found in malls or pawnshops, are the best places to exchange currency. Because there is strong competition with money changers, banks, and airports, these places usually have low margins and fees. Choose renowned kiosks in the country and famous pawnshops as well. This is where your research comes in again.

Tips on Money Exchange

  1. Ask your bank to raise your withdrawal limit to avoid carrying a bulk of money

For instance, being in Paris or Rome for a week will eliminate your daily withdrawal limit. In this situation, you won’t be allowed to withdraw more money for touring the city and eating meals there. You might be in trouble during your vacation if you can’t get enough cash. So, ask your bank to increase your daily withdrawal limits.

Make it a habit to inform your bank whenever you travel overseas. This will not only help with the daily withdrawal limit of your ATM, but it will also make using your credit card very convenient. Some banks flag your card when used overseas to prevent fraud. By telling banks in advance, you can prevent this inconvenience from happening.

  1. Compare exchange rates online before you fly

You must do your research first on the exchange rates so that you don’t get fooled. This will give you an idea of how much the exchange rate should be without the exchange margin and additional service fees.

Knowledge is key. Knowing the exchange rates before you fly will make you wiser when scouting where to have your money changed.

  1. Never use the cash advance feature on your credit cards unless necessary

Through the use of a foreign ATM, most credit cards have a feature that allows you to get cash in advance until your credit limit. However, not only will you be charged a foreign exchange fee, but you will also be charged a very high-interest rate the moment you avail of this service. The cash advance fee in itself is already very high. Coupled with the ATM and foreign exchange fees, this will cost you very much. Beware of this option or feature that your credit card company offers you.

  1. Ask for both small and large denominations

When exchanging money, you must always ask for smaller bills since there will be times when you will only be charged a small amount. This happens when you ride taxis, eat in local eateries, have street food, and purchase from small businesses. So, preparing for those situations is important by asking for lower bills.

In other countries, such as the Philippines or India, taxi drivers are notorious for not giving change when you pay them with a large bill. They will give you the excuse that they don’t have enough change.

  1. Only transact with legitimate money changers

Walking down the street in another country, your face already gives it away that you are from a different country. Because of this, some locals might try to trick you. Be careful if some local walks up to you in the street and offers you a much lower rate for exchanging your dollars for the local currency. Chances are that the person is from a black market money changer or some shady organization. You can get ripped off easily by these kinds of money changers. So, as tempting as it can be, do not offer cash just to anyone despite the great rates. Only transact with authorized money changers to be safe.

  1. Get a credit card with no foreign transaction fees

Even though credit cards charge high, they are indispensable tools when traveling to another country. You will need your credit card to make some large purchases. So, the ultimate weapon for this is to get a credit card with no foreign transaction fees.

Yes, these credit card types exist, and you have to look for them. Some travel-specific credit cards are tailored for people who frequently go from one place to another. Benefits and features, such as higher point-to-miles conversions, travel insurance, and travel promotions, are also tailored to travel. Included in these features is the option of no foreign fees. Apply for a couple of these cards if you are the type of person who travels a lot.


Money exchanges can be relatively simple to understand. Whether this is for investments or traveling, all you have to do is be prepared in advance. You need to do your research and plan to be able to save on money exchange transactions and get the best deals. Buying your currency before you leave the country will save you much on fees. So, always plan and strategize before leaving the country. Follow these tips, and you can do money exchange transactions anytime and anywhere.