Currency rates change the value of your money so knowing how to spend it when you are abroad is important. Below is a killer guide to making the most of your money abroad.
What are currency rates?
Cash is used to buy different goods and services. With your domestic cash, you can also buy foreign cash. A price of one currency in terms of another is also known as an exchange rate. Typically you can encounter two types of rates. Interbank (wholesale) rates and retail rates.
Usually wholesale currency rates are displayed with 5 digits after the coma, check Admiral Markets EUR/USD rate, for example. If you google “1 EUR in USD”, you will get a simplified (a retail) currency rate that only contains two digits after the coma.
In real life it is nearly impossible to get the exchange as shown on Google. The reason for this is simple. Operators of money exchanges have to earn profits and the only way they can achieve it is by setting a certain mark up. You don’t have to pay these mark ups though.
Dollar is what I need
To make a long story short, the life is quite simple for people who have US Dollars. Most countries treat USD as their second currency. If you have US Dollars, you will be getting the best exchange rates when converting to a local currency. Got US Dollars at your disposal? Great! Make sure to take plenty when you are going abroad.
But what to do if your domestic currency isn’t the US Dollar? You may think that your Canadian Dollars will be as good in, say, Ukraine, as American dollars. Converting your CAD into USD and then converting USD into Ukrainian Hryvnia sounds like a terrible idea, but it is not.
Most probably you will lose between 10 and 30 percent when exchanging Canadian Dollars to Ukrainian Hryvnia. Why does this happen? Because there is almost no demand for CAD in Ukraine. However, there is a high demand for USD in the Ukraine. This is the number one reason you should transfer your currency to USD before converting it to the local currency of the place in which you are traveling.
Cool, I’ve got Dollars, where do I exchange them?
Needless to say, the currency rate in a country may vary 10 to 15 percent. How can you make sure you get the best one? This is the most challenging part of converting currency. To start, you should avoid exchanging your dollars in the places that are designed for the foreigners. Airports, train stations, sights and hotels are a big no.
It is recommended to conduct some research before you visit a foreign a country to find out the best spots and means for exchanging your money. For example, in Venezuela, you can get nearly 100 times as much local money when exchanging on the black market, but this is not safe and you would need some help from the locals.
As a general rule, try to find the spots that may be frequented by the locals. These locations should have the best exchange rates. Local business centers, markets or jewelry stores may be the best spots to exchange your cash.
How about the cards?
Paying with your debit or credit card is a simple, yet a cost-effective way, to make payments abroad. You will not be getting as good deal as when you use cash, but you will save a lot of time.
When it comes to withdrawing local currency from the ATM, stay cautious! There are a few things to keep in mind. Typically, when taking money from the wall, you will be offered a guaranteed exchange rate. Never go for it! This exchange rate is the worst one you can possible get. Simply hit “No” on the screen and go for the unknown rate. It will certainly be better.
Withdrawing funds usually comes at a cost. Most of the countries set both a minimum and a maximum fee for your withdrawal. These fees are rather tiny, somewhere between $5 and $20. Nevertheless, avoid withdrawing small amounts. If you take out an equivalent of $50, it might cost you a total of $60. It is best to perform a larger withdrawal but only withdraw once to avoid steep fees.
Preparation is the key!
Taking care of foreign currencies before your trip and you may save a lot of money doing it this way. There is a high chance that people in your country are actually trying to get rid of the domestic currency of the country you visit. If you can find people trying to exchange this currency, you will meet an attractive exchange rate.
Make sure to bring quite a few small bills. Sometimes locals would happily accept dollars at a good rate, but they will rarely have change. Because of this, you should take as many one dollar bills as possible. This will let you pay without leaving generous tips. Do not bother with coins. It is nearly impossible to exchange those in any foreign country.
Be sure to prepare and think ahead and your trip will likely go off without a hitch. Most importantly, enjoy your trip abroad.
Photo: Flickr: Global Panorama