The counterparties of money exchange are dealers who trade currencies for profit. The formulas are 1 / direct quote=inverse quote and 1 / inverse quote=direct quote.įor stock and real estate transactions, buyers trade with sellers, but not for foreign currency exchange. For example, 1 CAD=0.74868 USDThese 2 expressions are interchangeable. For example, 1 USD=1.33567 CADInverse Quote:An inverse quote used an amount of foreign currency to describe 1 unit of local currency. Money exchange rates come with 2 expressions.ĭirect quotes and inverse quotes are 2 expressions of exchange rates.Direct Quote:A direct quote uses an amount of local currency to describe 1 unit of foreign currency.Generally speaking, the longer the locked-in period, the worse the exchange rates are. To lock in the rate, dealers have to set up their locked in rate far worse than their up to seconds wholesale rate. Most second tier money changers publish their rates every hour or even once a day. These up to seconds rates only make sense for large amount trading. Dealers need to subscribe to this information from Reuters or Bloomberg. That is why the interbank rate is always changing.įor a standard foreign exchange transaction, the amount is $100K, so the 5th digit of the decimal number represents $1. Every second, top tier banks match up buyers and sellers to make deals and publish the rate for the last deal. That is why the name of the rate is interbank rate.
The number was the actual exchange rate of the last executed deal between 2 banks. The interchange bank rate is a 5 digits decimal number which constantly changing. Rates are constantly changing 5 digit decimal numbers.With so many factors and variations, rates are dealer by dealer. Meanwhile, these dealers apply the same methods above to calculate their rates to customers. To build up all factor’s above into price, banks quote a rate to money changers. Current trend of the particular currency.Trading amount for this particular transaction.Following, but not limited to the following, factors determine the buy or sell rate. The larger the fraction number, the worse the rate is the smaller the fraction number, the better the rate is. The same idea applies to selling transactions too. That is why rates are similar but different for each dealer.When second tier dealers buy foreign currencies from top tier banks, they add a fraction number on top of the interbank rate as their profit. Because each dealer sets up its own rates based on the interbank rate (wholesale rate). The exchange rate of each money exchange dealer is different. Money exchange rates are dealer by dealer.Major financial hubs are London, New York, Dubai, Singapore, Tokyo and Hong Kong. Major banks have trading floors in each financial hub, so they can carry on their trade. When the New York market closes, the London market has been operating for a few hours already. For example, when the New York market opens in the morning, the Hong Kong and Tokyo markets in Asia are closed. The trading activities are switched between different major financial hubs. įoreign exchange markets trade 24 hours a day, 7 days a week. Foreign exchange is a market operating 24 hours/day.For a small amount of money exchange, money changers are more efficient than larger banks, since the operating costs are lower. These second tier money changers service the general public. They deal with second tier money changers, like local commercial banks, credit unions and money exchange dealers. Top tier players are international banks, such as Deutsche Bank, J.P Morgan Bank, HSBC etc. In case of overstock and downtrend, a foreign exchange dealer is more likely to offer a better exchange rate than usual to speed up sales.ĭue to all the driving factors above, only calling each foreign exchange dealer and asking for a quote can get you the best exchange.įoreign exchange industry implements a tiered market to ensure efficiency and profitability. For example, the exchange rate for electronic payment is much better than cash settlement, due to the cost of fraud, lost or stolen.įinally, the exchange rate is also pending on inventory level and currency trend. Thirdly, the actual exchange rate applied is payment restricted. A foreign exchange dealer offers the best exchange rate for the United States dollars may not have the best exchange rate for the Euro dollars. Secondly, the exchange rate is currency dependent. The best exchange rate provider of your last deal may not offer the best exchange rate currently. Calling each foreign exchange dealers and asking for a quote will find you the best exchange rate.įirstly, the exchange rate is time sensitive information.
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