Understanding Foreign Exchange Rates Before You Travel

Traveling internationally is an incredible experience, but dealing with foreign money can be incredibly stressful.

If you don't understand how foreign exchange rates work, you can easily fall victim to terrible conversion fees at airport kiosks or hidden surcharges on your credit card.

Here is what you need to know about exchange rates to protect your travel budget.

What is an Exchange Rate?

An exchange rate is simply the price of one currency in terms of another.

If the exchange rate for USD to EUR (Euros) is 0.91, it means that 1 US Dollar buys exactly 0.91 Euros.

• To calculate how many Euros you get for $100, you multiply: 100 × 0.91 = €91.

Conversely, if the rate for USD to MXN (Mexican Pesos) is 17.50, then 1 US Dollar buys exactly 17.50 Pesos.

• $100 × 17.50 = $1,750 Pesos.

Because the global currency market is always moving, these rates fluctuate every single minute based on international economics and inflation.

The Airport Kiosk Scam

The exchange rates you see on Google or financial news sites are the "mid-market" rates (the rates massive banks use to trade with each other).

As a consumer, you will never actually get the mid-market rate. If you walk up to a currency exchange kiosk at the airport, they will offer you a significantly worse rate.

If the mid-market rate is 1 USD = 0.91 EUR, the airport kiosk might only offer you 0.82 EUR. They pocket the difference as pure profit. You could easily lose $50 to $100 on a single transaction simply due to their inflated exchange rates.

The Best Way to Get Foreign Cash

To get the best possible exchange rate while traveling:

1. Never use airport kiosks.
2. Use an ATM in the destination country: When you arrive in Paris, go to an ATM attached to a major local bank and use your US debit card to withdraw Euros. Your US bank will give you an exchange rate very close to the mid-market rate.
3. Decline Dynamic Currency Conversion (DCC): If a foreign ATM or a waiter's credit card machine asks if you want to pay in USD or the Local Currency, always choose the Local Currency. If you choose USD, the foreign bank will use their own terrible exchange rate to convert it.

Do the Math Quickly

When you are standing in a market in Tokyo trying to figure out if a ¥5,000 bowl of ramen is a good deal, your brain might freeze.

Don't guess how much you are spending. Bookmark our free Currency Converter on your phone to instantly pull up live, mid-market exchange rates so you always know exactly what you are paying!