Exchange Currency

Which bank is better for you as the traveller to:

1. exchange home currency H$ to a foreign currency F$, or
2. exchange F$ back to H$ ?

1) Bank 1 rate:
Sell 1.6021 (1.5821)
Buy 1.4954 (1.5039)

2) Bank  2 rate:
Sell 1.5642 (1.5525)
Buy 1.5218 (1.5234)

Note:
Transact in home currency H$,
Sell: the shop sells F$ to you
Buy: the shop buys F$ from you
In Bracket means (Travel Cheque exchange rate)

Answer:

Calculate diff% = (sell – buy) / avg  %
avg= (sell + buy)/2

If diff% < 3% => bank rate reasonable.

1/2 diff%  = means one-way transaction fee
(either buy or sell) that you will lose in exchange

Bank 1:  diff%=6.88% > 3%
=> 1/2.diff% = 3.44%
Every $100 (from H to F or vice versa) lose 3.44.
If buy F then convert back to H immediately  (double conversions) => lose 3.44 x 2 = $6.88.

Bank2: diff% = 2.78% < 3%
=> good exchange rate.

Note: Traveller check Buy rate always higher than cash Buy rate,
because bank does not have to hold the actual cash. It is costly for
the bank to ship out the cash when a large amount has been collected.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s