how a currency exchange works
currency exchange businesses physical online and peer to peer allow you to exchange one country s currency for another by executing buy and sell transactions 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 bank card to the currency exchange store and buy australian dollars with them the amount you would be able to purchase would be dependent on the international spot rate which is basically a daily changing value set by a network of banks that trade currencies the currency exchange store will modify the rate by a certain percentage to ensure that it makes a profit on the transaction for example suppose the spot rate for exchanging u s dollars into australian dollars is listed as 1 2500 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 you can buy 1 20 australian dollars for 1 u s dollar with this hypothetical rate change their fee would effectively be 5 cents on the dollar because the 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 credit card fees at the foreign destination rather than use exchange services ahead of time travelers are advised to estimate how much money they will spend on a trip and compare the amounts saved through typical transactions currency convertibility is essential in a global economy and critical for international commerce and finance a currency that is inconvertible poses big barriers to trade foreign investment and tourism 