How Much Does I Lose on Currency Transaction?

pod

Does anyone know (maybe as a percentage, e.g. 2,3,4%) how much is "lost" on *cheque* (not cash) currency transactions?

For example, if you ask different banks for their currency transaction rate for converting Pounds Sterling into Euro, each bank will tell you their rate;- and hopefully one bank will have the best rate. Though even the bank offering the best rate is presumably making a profit. So whatever rate they're offering isn't the "true" value. So even using the best rate you're presumably still "losing" some money?

Using the following site

www.oanda.com/convert/classic

If I convert £1000 (British Pound.GBP) into euro (Euro.EUR) using the *Interbank Rate*, it equals €1444.46

Whereas if I use the *Typical Cash Rate (+4%)* it equals €1385.48

So, if I deposit a £1000 cheque (for example) in a euro account might I be losing as much as 4% on it's "true" value?

dod

The 'real' value of your cheque converted to another currency will vary depending on second by second FX fluctuations on the currency markets. A good indication of a mid point rate at any given time is available from any of the many financial sites on the web, e.g.Bloomberg

If, however you are attempting to find out the margin that the bank is making on your transaction, the easiest way to do it is to calculate the midpoint between their buy rate (bid) and their sell rate (offer). Calculate the value of that for the nominal amount that you are changing. Then calculate the value you will get by hitting the side of the price that you want (e.g. buy cheque or sell cheque). The difference between the midpoint and the value you will receive is the margin that the bank will make from your transaction.

The margin will vary from bank to bank depending on the side that favours their wholesale currency book- it may suit them to quote a higher bid, or a lower offer depending on whether they are long or short of the currency in question. Also the magnitude of the spread between the bid and offer will vary by bank and depending on the extent of liquidity that they want to provide to retail customers in the relevant currency pair.

pod

Thanks very much for the quick reply!

So, in order to discover a banks buy rate (bid) and their sell rate (offer) is this just a matter of phoning them to find this out?

Is it usual for banks margin to be 3 or 4% - somewhere in this region?

dod

The banks publish their retail rates on the boards in the windows of the branches, I don't know if they publish them on their personal banking websites. I presume they'll quote you a rate over the phone as well.

I would imagine 5% spread would be a huge margin even for a small size retail customer (for a currency in which there would be a high liquidity, e.g. $/£ or £/€) but I wouldn expect the margin to a retail customer might be even higher for a less liquid currency, e.g. South African Rand or Polish Zloty

pod

thanks again.

So, in the example I gave if I convert €1000 into sterling I get the following on the website currency converter

You buy £1000 = €1502
You sell £1000 = €1385


So, (using this example) does this mean that the "true" value of £1000 is actually €1502? Even though I would get the sell price of €1385

By "true" value I mean the value of the £1000 if no-one was making a profit form the transaction.

dod

A good indication of the true value would be the midpoint between the buy and sell values, i.e.

(1502 + 1385) / 2 = 1443.5

pod

Oh right, I think I get it now..

You buy £1000 = €1502
You sell £1000 = €1385

If I buy £1000, it costs me €1502 because they've placed the euro amount I have to pay a bit above the "true" value".

If I sell £1000, I receive €1385 because they've placed the euro amount I receive a bit below the "true" value.

Assuming the "true" value id €1443.5

I think I understand it now. Thanks very much for this!

Victor

If you want to accept the full value form a client, get them to pay into your account via Interpay (using IBAN and BIC numbers) for the amount you want. It would only cost you the amount of a n ordinary lodgement.