Exchange Rate Fraud?

cormie

Hi there,
I recently cashed out $50 from an online poker account that have no fee for this service into a Neteller online account.

I had set up my Neteller account in EURO which means the USD had to be converted to EURO for my account. €39.66 ended up in my account. This is equal to $48.11. I then decided to create a new Neteller account in USD and have them transfer the €39.66 to that account. Now I have $48.11 in my new USD account. My question, where did the $1.89 go?

They told me it's $48.11 because that is the conversion rate from EUR to USD @ 1.2131 from my €39.66, which is correct. When I put this rate into my phone and do the opposite (USD to EURO) of $50 with this rate, it equals EUR41.21 which of course equals USD50.00 when I use the 1.2131 rate to convert it back.

When I go to my phone calculator and to the exchange rate tool and put:
Domestic Unit in Foreign Units @ 1.2131
the Foreign Unit in Domestic Units rate changes to .82433435.

Now I always thought that there is one rate that if you want to get dollars for €1 that you will get $1.2131 and that this rate is set so if you want to get euros for $1 you will get .82433435.

However, I was told that these rates are different and even though the EUR to USD rate may be 1.2131, this doesn't mean the EUR to USD rate has to be .82433435. I was told the rate for USD to EUR I was given in this transaction was about .79.

Is this right?

I was also onto Neteller customer service LIVE CHAT online and I was told this:

Richard: I believe that the actual conversion rate would have been applied as well. It is stated in the account as €39.66 Euros X 1.2131 = $48.11 for the conversion. The 1.9% is applied during the conversion. The rate listed above 1.2131 already has the 1.9% buffer or fee already included and so this figure would come from the conversion rate of that day plus the 1.9% which would equal to the $48.11 USD.

The 1.9% he is talking about is a conversion fee of some sort I think. Strangely enough, when I take 1.9% from $50, it is $0.95, when I double that to 3.8%, it gives me $1.89 which is the money I'm missing. Is this just a crazy coincidence?

I'm pretty confused here. Can anyone make sense of this and is it right that I only end up with $48.11 after transferring $50?

Any feedback appreciated, thanks!

RainyDay

Your credit card company charge a fee for FX transactions. The fee varies between 1.75% and 2.75% depending on the CC company.

cormie

Hi,
there were no credit cards involved in this transaction. This is simply a transaction from an online poker company who charge no fee to an online money holding company (not a bank). No credit cards involved at all

Ste05

I don't claim to know much about this, but I've noticed this myself, when I was doing a bit of bonus whoring, I'd deposit money into a site and would seem to get screwed on the FX rate when withdrawing.

What I put it down to was what all Retail Financial Institutions do to make a profit on F/X transactions, I think it's known as the "Spread", i.e. for example buying a $ from punter A at .98 and then selling it to punter B for 1.01, and so if your changing from one currency to another regularly you'r losing money, (assuming the FX rate remains the same) it's how they are make money on these transactions by selling high and buying low. It's pretty complicated and haven't done it since my days in college.

But I'm sure there's some Finance student out there now who can completely rubbish my theory or shed more light onto the subject.

cormie

Yeah, that's probably it alright, suppose it's just a good job it was only $50! So can anyone confirm that there is actually 2 seperate rates?

blorg

As Ste05 says, currency buying and selling rates are not the same, and the difference between them is called the "spread". This is the case _absolutely anywhere_ (credit card, bank, whatever) you change currency and is completely seperate from "commission" which is a percentage stuck on top. You got the USD converted into EUR at their offered rate, there was no fraud.

http://en.wikipedia.org/wiki/Bid/offer_spread

cormie

Thanks for clearing that up:)