Why is buying physical currency expensive in the US?

Discussion in 'Economics' started by peilthetraveler, Aug 17, 2011.

  1. I can never figure this out. No matter what country I've gone to, the spread to exchange US dollars for another currency (or another currency for US dollars) its been pretty cheap. For instance...In europe, when the spot price is 1.42 for the euro, you can buy it for 1.44, or sell it for 1.40. Yet I was at the airport the other day and as usual, it was expensive. They were buying euros for 1.22 and selling them for 1.62. Other currencies usually cost you alot too. Usually they make a profit of about 15 to 20% on every dollar you exchange.

    So does anyone know why it cost 15-20% here but never really over 3% in every other country?
     
  2. I think you're making an apples and oranges comparison here. Are you also buying currency in Europe at an airport? If you're not, the spread at an airport is obviously going to be much higher than if you went to a financial institution. I've never used it myself, but most banks here in the U.S. will sell you foreign currency as long as you arrange it with them in advance.
     
  3. Yes, in the airport in other countries give you cheap prices also. I've also been to bank of america and they also charge 15-20% off spot and on top of that, they have to order the currency and you wait a week or two to get it. There is also a travelex (currency exchange center) about 20 miles from me in downtown sacramento. They charge 15-20% also PLUS a fee for doing the exchange. I've never seen anywhere in the world that takes such a huge cut of currency exchange. Only in the US. But I just cant figure out why that is. I thought it might be some kind of fixed rate cartel setting the prices or something, but on ebay its the same thing. 100 euros selling for $155 to $160. I wonder if its so high is it because foreign currency is not so readily available here so it drives the price up? Because there are currency exchange centers everywhere in other countries.
     
  4. My guess is that since the dollar is the reserve currency of the world, Americans relatively have less of a need to know about other currencies. Because of this, it may be that Americans are not familiar with the typical spread on currencies, and the various institutitions can mark up the spread due to this lack of knowledge.
     
  5. Or maybe it's because Americans don't travel much abroad, on the whole. So foreign currency is a bit of an exotic product which is traded with a large "markup".
     
  6. I am going to Europe next month. I have been surprised that there are not that many places to get physical Euro's. The best option I have found so far is Wells Fargo. It looks like they will ship $1000 worth of Euro's for at about 1.32 exchange rate. An AMEX travel place wanted 1.34. They are even going on eBay for 1.35+. I figure that's my best bet rather than risk an airport vendor or an ATM in Europe wanting 1.60+. I know many places take VISA and AMEX but I assume that they automatically convert it and the exchange rate won't be very good. Any thoughts?
     
  7. Surdo

    Surdo

    Your best rate is going to be on the ground, NOT the airport in Europe and not in The US. There are Cambio booths all over any major city, just shop the rate a little. The dollar has strengthened Vs the Euro the past month substantially, so why worry about pennies?

    As far as Visa/MC is concerned, you will get the OANDA rate less 3% conversion fee, not the end of the world, if you do not want to carry cash. AMEX travel agency are crooks on the rate!
     
  8. This is an interesting question. When my buddies and I drove into Canada for fishing trips, the spread was around 4 cents. When we drove back, it was around 8 or 10 to convert back to USD. I guess we were always too hungover to even notice.
     
  9. Thanks for the advice. So I guess I should just get a couple of hundred Euro's here to tide me over until I get there.
     
  10. Tom B

    Tom B

    #10     May 26, 2012