The thrill of exploring new countries, immersing yourself in other cultures and savoring exotic eatery experiences is part and parcel of travel. When venturing outside the U.S., however, you will most likely have to ditch your dollars for the local currency. Knowing how best to go about this exchange could ensure you avoid getting a raw deal.
Exchanging currency entails trading one's money for that of another country. The exchange value is dictated by the international spot rate, set by a collection of banks involved in currency trades. Forex rates are consistently changing due to the global economy's 24-hour movement. The value between currencies fluctuates as economies strengthen or weaken, as a result of inflation and deflation, and as trade deficits expand and contract.
Large quantities of currencies are continually bought and sold by financial institutions, investors, and speculators - this creates the live exchange rate between two currencies. The highest trading volumes are usually seen with the U.S. dollar, pound sterling, euro, and Swiss franc.
When you are in a foreign country and wish to buy an item in the local currency, you would typically be dealing with much smaller amounts. Consequently, you may end up paying a higher exchange rate ensuring the currency booth or shop can make a profit.
Different currency exchanges offer varying rates, with some taking advantage of tourists in high-traffic areas to turn a profit. If you decide to exchange at a currency booth, you will pay substantially more than the international spot rate due to the commission the shop takes. Conversely, exchanging through a bank or even withdrawing the local currency from an ATM usually results in a better return, even when considering potential ATM or credit card fees.
The first chance to exchange currency is often at the airport you've arrived at. However, these airport exchanges should be avoided if you can, as they offer less desirable rates, knowing that newcomers may be in immediate need of the local currency for transportation.
Many credit cards waive the additional foreign exchange fee, offering a bank rate when used to purchase items overseas. Once outside the airport, you may find yourself in a marketplace or tourist hotspot filled with currency exchange shops poised to take advantage of visitors. Rest assured, these rates will be better than those at the airport but still inferior to a dedicated bank or local ATM.
Local banks or ATMs offer the best rates – many foreign institutions provide more advantageous rates than elsewhere. Plus, skipping the line at the ATM might be your best bet. Many U.S. banks offer reimbursements for foreign ATM fees and do not charge for utilizing foreign ATMs. Knowing that you are receiving the best dollar exchange rate may provide you with peace of mind.
The cheaper exchange option is to use a bank or ATM rather than an airport kiosk due to the significantly marked-up exchange rates. Travelers are advised to check beforehand with their banks or credit card providers regarding foreign transaction fees, as credit cards may not be accepted everywhere.
Fortunately, banks are typically dotted all over the central business district of major cities, bustling neighborhoods, and even within airports. While you may have to pay a minor ATM fee, this will still likely be less than the unfavorable rate you'll encounter at the airport or in a dedicated currency exchange booth.
Keep in mind that planning your forex transactions can save you from unnecessary stress with money during your vacation and let you purely focus on the more enjoyable activities, such as sampling local cuisines or visiting landmarks and sites of the beautiful foreign countries.