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Foreign Exchange Servies Essay

2608 words - 11 pages

Foreign exchange services are provided by many banks around the world. Foreign exchange services include:
* Currency exchange - where clients can purchase and sell foreign currency banknotes.
* Foreign Currency Banking - banking transactions are done in foreign currency.
* Wire transfer - where clients can send funds to international banks abroad.

currency exchange[1] (American English) is a business whose customers exchange one currency for another. Although originally French, the term bureau de change is widely used throughout Europe, and European travellers can usually easily identify these facilities when in other European countries. It is also common to find a sign saying ...view middle of the document...

The rate at which a bureau will buy currency differs from that at which it will sell it; for every currency it trades both will be on display, generally in the shop window.
So the bureau sells at a lower rate from that at which it buys. For example a UK bureau may sell €1.40 for £1 but buy €1.60 for £1.
So if the spot price on a particular day is €1.50 to £1, in theory £2 will buy €3, but in practice this would be hard if not impossible for average consumers to get. If the bureau de change buys £1 from a consumer for €1.40 and then sells £1 for €1.60, the 20¢ difference makes a profit.
This business model can be upset by a currency run when there are far more buyers than sellers (or vice versa) because they feel a particular currency is overvalued or undervalued and becomes not worth a Continental.
The business may also charge a commission on the transaction. Commission is generally charged as a percentage of the amount to be exchanged, or a fixed fee, or both. Some bureaux advertise themselves as commission-free, which mathematically just means they further load their offered exchange rates. As an additional complexity some bureaux offer special deals for customers returning unspent foreign currency after a holiday. Bureaux de change rarely buy or sell coins, but sometimes will at a higher profit margin[citation needed], justifying this by the higher cost of storage and shipping compared with banknotes.

Consumer issues:
Changing money at a bureau is often more expensive than withdrawing it from a Automatic teller machine at one's destination or paying directly by debit or credit card,[citation needed], but this varies depending on the card issuer and the type of account. Some people may feel uncomfortable carrying a lot of cash and so prefer to use a card.
Some may also prefer to hold foreign currency rather than change it back if they are expecting to return to where it is used. Companies that frequently send employees abroad may essentially act as their own exchange by reimbursing their employees in the local currency and holding the foreign currency. If exchange rates are relatively stable, the fees charged by a bureau may exceed any likely fluctuation and it also makes the company's accountancy easier.[citation needed]
In the alternate, some prefer to buy their currency before they travel, either just for a sense of security, or because they speculate the exchange rate is better at that time than it will be when they make their trip.[citation needed]
In 2002 many bureaux reported substantial reductions in profit due to the replacement of many European currencies with the Euro.

Illegal activity:
A number of countries require Bureaux de change to register as Money Service Businesses that come under Anti-money laundering controls. However in countries where currency exchange is lightly regulated they can be used as front organizations for money laundering. Customers bring legally obtained money and receive illegally obtained...

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