Currency exchange rate question - was I overcharged / short-changed? Or is the stress of spending all my savings on vacation getting to me?
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Currency exchange rate question - was I overcharged / short-changed? Or is the stress of spending all my savings on vacation getting to me?
Hello!
I went to a currency exchange business on August 7th in the US to buy Peruvian Sol for an upcoming trip. The rate I received was 2.8902855 Sol per US Dollar, but every website that I check current rates for is about 3.5 Sol per US Dollar. (I did check the rates for the same day I made the purchase.) According to the exchange rates I found on the internet, I should have been charged about 100.00 US dollars less for the amount of Soles I purchased. Was I overcharged / short-changed? I did pay 1% commission, so assumed I would receive the current value... Is this standard operating proceedure? Should I return the money and try to do better once I get to Peru?
Any advice would be appreciated!
I went to a currency exchange business on August 7th in the US to buy Peruvian Sol for an upcoming trip. The rate I received was 2.8902855 Sol per US Dollar, but every website that I check current rates for is about 3.5 Sol per US Dollar. (I did check the rates for the same day I made the purchase.) According to the exchange rates I found on the internet, I should have been charged about 100.00 US dollars less for the amount of Soles I purchased. Was I overcharged / short-changed? I did pay 1% commission, so assumed I would receive the current value... Is this standard operating proceedure? Should I return the money and try to do better once I get to Peru?
Any advice would be appreciated!
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The exchange rates you see published in newspapers and at various websites is most commonly the "interbank" rate. The interbank rate is a statistical composite of the exchange rates various large financial institutions use for transfers on the order of a million dollars plus at a pop. Being a statistical construct means that even if you were exchanging a million dollars you probably wouldn't get the exact rate published. You should however get something reasonably close.
Unfortunately since you aren't exchanging a million dollars (more like $600 if my math didn't completely pack up and leave on vacation) you aren't going to get the interbank exchange rate. Excluding ATM and "out of network" fees foreign currency withdrawals from ATMs are the best deal with the exchange rate averaging around a 1% discount from interbank, while foreign currency credit card charges are converted at a 1-4% discount from interbank and traveler's checks are typically converted at a 4-8% discount. Purchasing foreign currency in your home country is the worst deal around, with discounts on the order of 7-10% being levied (less common currencies like the New Sol would have higher discount levied than something like the Euro) and possibly even a bit higher for those ludicrous "foreign currency starter packs" that are sold so people have small amounts of the appropriate currency when they arrive at the airport.
With this in mind the 17% discount you paid (if the figures you posted are correct) does seem a bit excessive. You might want to contact your currency vendor and ask for reasons why.
Unfortunately since you aren't exchanging a million dollars (more like $600 if my math didn't completely pack up and leave on vacation) you aren't going to get the interbank exchange rate. Excluding ATM and "out of network" fees foreign currency withdrawals from ATMs are the best deal with the exchange rate averaging around a 1% discount from interbank, while foreign currency credit card charges are converted at a 1-4% discount from interbank and traveler's checks are typically converted at a 4-8% discount. Purchasing foreign currency in your home country is the worst deal around, with discounts on the order of 7-10% being levied (less common currencies like the New Sol would have higher discount levied than something like the Euro) and possibly even a bit higher for those ludicrous "foreign currency starter packs" that are sold so people have small amounts of the appropriate currency when they arrive at the airport.
With this in mind the 17% discount you paid (if the figures you posted are correct) does seem a bit excessive. You might want to contact your currency vendor and ask for reasons why.
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Etee says it all above- if you do the exchange in your home country you get ripped off. Unfortunately if you try to change it back to dollars you will loose even more. When you take your trip be frugal for a few days to make up the difference and call it a lesson learned. I did the same thing years ago when I went to Mexico- oh well
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We went to Peru in May and stayed mainly in heavy tourist areas- Lima Cusco, ect. We were able to use US dollars almost everywhere. Change was usually given in Soles, so we then had them available for small purchases. We had trouble with ATM machines (first time ever) and had to try several before our card was accepted.
#5
I no expert but I do know that the daily international rates are not what you receive yourself. You can come closest to it using an ATM or credit card, maybe 2nd closest from your own bank, and currency exchange businesses give the worst (i.e., they charge a fee plus give lowest rate of exchange). So I wouldn't call it "overcharged" or "shortchanged" exactly, it's just that is their business and they DO make money off your transaction.
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Thanks for all your responses!
The company does offer to buy back any money you don't use on the trip at no additional cost. Would it be very poor form to exchange it all back before I go?
The company does offer to buy back any money you don't use on the trip at no additional cost. Would it be very poor form to exchange it all back before I go?
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First I'd check to see what their definition of "no additional cost is". I have this unpleasant suspicion that this means simply that they're not going charge you another commission. The question is what the rate is going to be for the exchange back into dollars.
When exchanging foreign currencies there's typically two rates involved, a "bid" (sometimes called "buy"
rate, and an "ask" (sometimes called "sell"
rate. When you buy (bid) the foreign currency you're given an exchange rate LOWER than the interbank rate by some percentage. When you sell (ask) the foreign currency you're given a higher rate than the interbank rate.
Let's use your USD to PEN exchange as an example - when you purchased your New Sols you were apparently sold them for 17% below the interbank rate. It wouldn't be completely uncommon to apply the same markup when you sell the New Sols back, meaning that if the interbank exchange remains at 3.5 PEN/USD, they'd sell you your same USD back to you at the rate of 4.1 PEN/USD. This in turn translates to a whopping 34% net loss in USD.
If they are indeed offering to purchase back the New Sols at the same rate that you purchased them at (i.e. 2.89 PEN/USD), which would seem to be a lot more realistic of a proposition, rather than wasting any further time before your trip, I'd simply (a) wait until after the trip to make the exchange back, and (b) make sure that while you're in Peru you make sure to withdraw enough money (naturally in New Sols) from a bank ATM to make up for any New Sols that you spent. After your trip you can then return to the exchange bureau at your leisure and "redeem" your USD, leaving the exchange bureau with the same number of PEN as they started with.
When exchanging foreign currencies there's typically two rates involved, a "bid" (sometimes called "buy"
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Let's use your USD to PEN exchange as an example - when you purchased your New Sols you were apparently sold them for 17% below the interbank rate. It wouldn't be completely uncommon to apply the same markup when you sell the New Sols back, meaning that if the interbank exchange remains at 3.5 PEN/USD, they'd sell you your same USD back to you at the rate of 4.1 PEN/USD. This in turn translates to a whopping 34% net loss in USD.
If they are indeed offering to purchase back the New Sols at the same rate that you purchased them at (i.e. 2.89 PEN/USD), which would seem to be a lot more realistic of a proposition, rather than wasting any further time before your trip, I'd simply (a) wait until after the trip to make the exchange back, and (b) make sure that while you're in Peru you make sure to withdraw enough money (naturally in New Sols) from a bank ATM to make up for any New Sols that you spent. After your trip you can then return to the exchange bureau at your leisure and "redeem" your USD, leaving the exchange bureau with the same number of PEN as they started with.
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Rule #1 for Americans is that never changing for foreign currency at home. The transaction fee is always sky high because American banks have very little such business so they handle this as customer's special requests, naturally going with very high service charges. In fact, you are lucky to even find a bank who has sol available.
The market exchange rate published everyday is observed by banks around the world. Usually, the published rate is the middle point of banks buying and selling your dollars. So for selling, when the market rate is 3.5, you can get between 3.4 and 3.45 sol for each dollar, everywhere in Peru, certainly at the Lima airport upon your arrival. When you use sol to buy your dollar back before your heading home, you pay about 3.55 to 3.6 for 1 dollar.
Just remember from your this experience, that never do such transactions at home. Your local American bank didn't overcharge you, it is just the way how it works. You shouldn't have asked such unnecessary transaction in the first place.
The market exchange rate published everyday is observed by banks around the world. Usually, the published rate is the middle point of banks buying and selling your dollars. So for selling, when the market rate is 3.5, you can get between 3.4 and 3.45 sol for each dollar, everywhere in Peru, certainly at the Lima airport upon your arrival. When you use sol to buy your dollar back before your heading home, you pay about 3.55 to 3.6 for 1 dollar.
Just remember from your this experience, that never do such transactions at home. Your local American bank didn't overcharge you, it is just the way how it works. You shouldn't have asked such unnecessary transaction in the first place.