Most banks offer foreign exchange services to the public. This means that banks will convert euro currency into foreign currencies like sterling, dollars and yen for you to take on your travels. When you come back from your travels, they will convert
your leftover foreign currency back into euro. Banks charge a fee for these exchanges.
The exchange rate is the rate at which the money of one country can be changed for the money of another country.
When you go into a bank you will see two exchange rates when dealing in foreign currencies. One is the price at which the bank will buy a currency from you. The other is the price at which the bank will sell a currency to you.
Example: Frank Foley is going to a trade exhibition in London and wants to convert e500 into sterling to bring with him.
Bank says ‘We buy sterling’ 0.80
‘We sell sterling’ 0.75
Since Frank wants to get pounds sterling from the bank, it is selling sterling to him. He therefore uses the bank’s ‘We sell’ rate.
Converting Euro into Sterling Frank wants to exchange e500 for pounds sterling. Multiply e500 by the sell rate. This gives 500 x 0.75 = £375.
Converting Sterling back into Euro Frank has £100 sterling left over from his London trip and wants to turn it back into euro. The bank is buying sterling from him, so he would use the bank’s ‘We buy’ rate.
Divide 100 by 0.80. This gives 100/0.80 = e125.
Foreign Exchange Tip To change euro into a foreign currency: multiply the euro amount by the ‘We sell’ exchange rate. To change a foreign currency back into euro: divide the foreign currency amount by the ‘We buy’ exchange rate.
