Why You Need To Understand Bank Exchange Rates

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					         Why You Need To Understand Bank Exchange Rates

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 online.

It also pays to do your research and ask the banks the tough questions. You would be
amazed what they can do for you when they know losing your business is on the line.
Good luck with that Bank Exchange Rate!

I've worked for a number of years in foreign exchange and have put together a blog that
will allow others to benefit from my foreign exchange knowledge, particularly on how to
achieve more competitive bank exchange rates.

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