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Advice on Foreign Currency Exchange

How are exchange rates determined?

Foreign currency exchange rates are determined in the international markets. Exchange rates are constantly changing and at any given time depend on the supply and demand for a given currency which in turn depends on economic factors (employment rates, interest rates, GDP growth, etc.) as well geopolitical factors impacting economic calculations (government announcements, political risk, security risks, etc.). You can find the latest rates by using one of the links provided above.

Why are the rates quoted to me by financial institutions different than rates quoted in the media?

The exchange rates determined in the international markets and often quoted in the media are reference rates (sometimes, called the “spot” rate). They are a starting point for where you can begin to conduct a transaction but no financial institution will actually conduct exchanges at these rates.

How can I get the best exchange rate?

The way to get the best exchange rate is to find a credible provider of exchange services that can get you as close as possible to the spot rate. In industry lingo, the service provider offering the “tightest spread” is providing you the best price. In short, the best thing to do is to comparison shop. When you are comparing rates, make sure you are comparing rates at the same time or within a reasonable time frame as rates are always moving. A helpful link allowing you to compare exchange rates in Canada at any given time is provided above and here.

Can anyone predict the future of exchange rates?

There is a whole industry dedicated to predicting the outcome of exchange rates. These predictions are simply opinions and not necessarily accurate. Be wary of anyone who makes unqualified predictions about future exchange rates. If anyone actually had a model for determining future exchange rates, they would not be sharing it broadly. At any point in time, exchange rates reflects the expectations and predictions of all market participants. The best you can do is to be aware of current rates and formulate an educated opinion about where they may be going based on the latest news which you can find by using one of the links above. Certainty in the exchange rate market is not realistic.

Does the amount of the transaction make a difference on the exchange rate?

In general, larger transactions will receive better rates. If you are converting a large amount for a property purchase overseas you should expect better rates than if you are buying a smaller amount for travel.

Why is there a difference between cash and non-cash transactions?

In general, non-cash transactions (bank transfers, drafts, etc.) will receive better rates as cash is difficult and expensive to handle. Whenever you see or are quoted a rate, you should ask to see if it is a cash rate or a non-cash rate.

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