What Is a Currency Exchange?

A currency exchange is a licensed business that allows c🐼ustomers to exchange one currency for another. The exchange of physical money (coins and paper bills) is usually done over the counter at a teller station, which can be found in various places such as airports, banks, hotels, and resorts.

Currency exchanges make money by charging a nominal fee and through the bid-ask s💛pread.

Also known as a "bureau de change" or "casa de cambio," a currency exchange should not be confused with the foreign exchange (forex) market, where traders and financial institutions transact currency trades.

How a Currency Exchange Works

Currency exchange businesses—physical, online, and 澳洲幸运5官方开奖结果体彩网:peer-to-peer—allow you to pur🌌chase another country's currency with your own country's currency.

For example, if you have U.S. dollars and you want to exchange them for Australian dollars, you would bring your U.S. dollars (or bank𝓰 card) to the currency exchan𓂃ge store and buy Australian dollars with them.

The amount you can purchase is dependent on the international 澳洲幸运5官方开奖结果体彩网:spot rate, whi🌼ch is a daily value set by a networ🐽k of banks that trade currencies.

Charge for Service

In addition to a service fee, the currency exchange store will modify the rate by a certain percentage to ensure that it makes a profit on 𒁏the transaction.

For example, suppose the spot rate for exchanging U.S. dollars for Australian dollars is listed as 1.250🌟0 for the day. This means that for each U.S. dollar spent, you can buy 1.⛦25 Australian dollars if traded at the spot rate.

But the currency exchange store may modify this rate to 1.20, meaning y𒉰ou can buy 1.20 Australian dollars for 1 U.S. dollar. With this hypotheticalཧ rate change, their fee would effectively be 5 cents on the dollar.

Because the 澳洲幸运5官方开奖结果体彩网:transaction is not conducted at the spot rate, and depends on the profit that the exchange wants to make, consumers may find that it is less expensive to incur ATM or 澳洲幸运5官方开奖结果体彩网:credit card fees at the fo☂reign destination, rather than use exchange services ahead of time.

Travelers are advi𒐪sed to estimate how much money they will spend on a trip and to compare the amounts saved through typical tra♎nsactions.

Where to Find a Currency Exchange

Currency exchange businesses can be found in a variety of forms and venues. One might be a stand-alone, small business operating out of a single office. Or you might find access to a larger chain of small exchange-service booths at aiꦰrports. Often, a large international bank will offer currency exchange services at its teller stations.

Airports are common places for currency exchanges because of all the business and tourist travel. They enable travelers to purchase the currency of their travel destination immediately before their departure. 🍷Travelers can then change any excess money back to their local currency upon their return.

Because airports are seen as the last port of call, the rates at airport exchanges will, in general, be more expensive than those at a bank in the 澳洲幸运5官方开奖结果体彩网:city of departure.

Importantly, going cashless is becoming more common as some banks off🧸er cards that can load multiple currencie𝓰s on them with little or no fees.

In addition, offshore ATMs are a viable option for those banking with a global bank. For example, HSBC ATMs are 澳洲幸运5官方开奖结果体彩网:prevalent in Europe💧, North ꩲand Latin America, Asia, the Middle East, and North Africa.

Currency exchange services are also provided by businesses that offer their services online. You may find that currency exchange is one of the services provided by a bank, 澳洲幸运5官方开奖结果体彩网:forex broker, or other 澳洲幸运5官方开奖结果体彩网:financial institution.

Bid-Ask Spreads in the Retail Forex Market

As mentioned, currency exchanges earn their money in two ways. They charge customers a fee for their services and they take advantage of the bid-ask spread in the currency. The bid price is what the dealer is willing to pay for a currency, while the 澳洲幸运5官方开奖结果体彩网:ask priceꦜ is the rate at which a dealer will sell the same currency.

For♎ example, Ellen is an American traveler visiting Europe. The cost of purchasing euros at the airport may be quoted as follows:

EUR 1 = USD 1.30 / 1.40

The higher price (USD 1.40)♛ is the cost to b๊uy each euro. Ellen wants to buy EUR 5,000, so she would have to pay the dealer USD 7,000 (1.4 x 5,000).

Suppose also that the next traveler in line has just returned from her European vacation and wants to sell the euros that she has left over. Kately♔n has EUR 5,000 to sell. She can sell the euros at the bid price of USD 1.30 (the lower price) and would receive USD 6,5☂00 in exchange for her euros.

Because of the bid-ask spread, the kiosk dealer is able to make a profit of♐ USD 500 from t🍰his transaction (the difference between USD 7,000 and USD 6,500).

Just remember, when faced with a standard bid and ask price for a currency, the higher price is what you would pay to buy the currency and the lower price is what you would receive if you werℱe to sell the currency.

The Bottom Line

A currency exchange is a business that facilitates the exchange of currencies for its customers. For instance, if you live in the U.S. and are traveling to Europe, you'd most likely want to have euros for your trip. At a currency exchange, you would buy euros with your U.S. dollars.

Currency exchanges provide this service for a fee. They also make money on each transaction🌊 th🌱rough the currency bid-ask spread.