Why You Need To Understand Bank Exchange Rates (DOC) by kagarwal2050


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									In an increasingly global market place, particularly in Australia where the bulk of goods we consume
come from overseas imports it has become important to understand Bank Exchange Rates and how they
are calculated.

The strong Aussie dollar - near record highs - has seen the majority of Australians now buying their
goods from overseas usually over the internet. The reason for this is usually two fold and comes down to
ease and more competitive prices. Personally, I have traveled the world and have seen the prices paid
for basic and non basic items and became somewhat disillusioned with the poor service and prices we
receive in outlets across Australia. Without harping on too much, it is important to understand how the
bank's come up with this rate and what you can do to achieve the best possible rate.

First, we must understand that bank exchange rates are not the exchange rate today nor the official
market rate. While this sounds obvious to me - I have worked in foreign exchange jobs for a number of
years - it is not so obvious to others. And believe me over the years, I've been asked many times why it
matters where you go to purchase your foreign currency.

As I mentioned above the Bank Exchange Rate you receive is not the market rate, the bank exchange
rate rather is a function of the market plus the banks margin. The easiest way to describe this is to think
of foreign exchange as a product. As we know before we buy anything we usually check a few prices,
and if you did that today with the four largest Australian banks, you would get four different prices.
Fortunately for the bank's they are in the unique position where 99% of people do not check the price
they are receiving, they are a true market maker.

In order to turn the tables on the bank and wrestle back some control in terms of the bank exchange
rate you receive you will need to set-up more than one bank account and preferably with a non-bank
foreign exchange provider, they typically compete much better on price and can give you the leverage
you require to start saving money on your foreign exchange transactions. This would be particularly
useful if you are an online trader with a business, or someone who purchases a large amount of goods

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