rates of exchange

[romurphy@eir]

Can anyone tell me the difference between buying and selling exchange rates. I need to transfer an amount of EUROS to an Australian Bank (Aus $ A/c) I was told by the bank clerk that the rate today for buying dollars is $1.66. Upon transferring this turned to $1.56 and when I questioned this I was told that it is a middle ground between buying & selling as I was making an electronic transfer. I would be grateful if anyone can explain this to me in simple terms? Thank you
Theresa

 

[callybags]

Basically the bank make their profit from the difference between what they buy a currency for and what they sell it for.

In your case, their selling price to you was $1.56 to the Euro.

They would have bought these dollars at say $1.76.

The rate quoted is as they say, a middle rate.

 

[Boros]

hi romurphy@eir

callaybags - you are correct in that the banks make their money from the exchange rate that they get and they give to the customer

there is however there always is difference in exchange rate between buying and selling a currency, Bid = buying a currency Ask = selling a currency.

The difference between the bid and the ask is called "the spread".

the spread is kept as profit by the wholesale broker/specialist handling the transaction. In truth, the spread goes to pay a number of fees in addition to the broker’s commission. Note: This is not the same commission you pay a retail broker. The wholesale broker isnt your bank it is the supplier that the bank buys off.

Having say all that the difference between buying or selling a currency is only around 10pips. i.e 1.8200 and 1.8210.

But this does not explain the difference in exchange you revived, what does explain the difference is the margin (difference in exchange rate they get and the exchange rate they give to you)


they have given you an exchange rate around 6% off what they receive, this is not unheard of. It does however depend of the your were exchanging. as 6% is normal for tourist rates i.e bureau de change.

normally you would expect this for amounts under €1,000

if you are exchanging larger amounts i.e €10k + i would recommend not using your bank but using a independent currency specialist as you are likely to get a much better exchange rate.

i hope this information has been of use

regards

Alex