The Many Ways to Exchange Foreign Currency

This article outlines how businesses and individuals can exchange foreign currency, from using currency kiosks and online platforms to international wire transfers and participating in the global forex market.

How International Travelers Can Exchange Foreign Currency

Whether for business or leisure, cross-border travel may be one of the most obvious reasons to exchange foreign currency. Traveler’s checks were once a necessity for international travel, but the rise of credit and debit cards may be bringing those days to an end.² Still, credit and debit cards aren’t accepted everywhere, so travelers may wish to be prepared with enough foreign currency to get them through their journeys. Here’s how travelers can exchange domestic currency for foreign currency:

• Banks or credit unions can help users make an exchange in advance. Many banks do not charge extra fees and tend to have more favorable exchange rates than other options, but it can sometimes take a few days to receive the desired currency if the bank does not have it on hand.³ Some banks offer in-person exchanges, while others allow online ordering for pickup at a local branch.⁴ Users may need an account at the desired bank.
  

 

• Online currency converter providers let users exchange foreign currency online. The desired currency will typically be delivered either to the recipient’s address or a local store for pick up, but most platforms will charge a delivery fee.⁵ In exchange for convenience, rates may be less favorable than converting at banks.⁶

 

• ATMs are one of the most convenient ways to exchange foreign currency, especially if the traveler is already in their destination country.⁷ Depending on the credit or debit card’s policies, users can typically insert their payment card into an ATM and receive foreign currency in cash. However, there may be additional charges like currency conversion fees, foreign transaction fees, out-of-network ATM fees, and more.

 

• Money changing kiosks seem convenient as they are usually located at airports, train stations, border crossings, hotels, and popular tourist destinations. However, they tend to be notorious for charging high fees and markups.⁸ But kiosks can work in a pinch, especially for last-minute emergencies.⁹ Like an ATM, the user inserts their domestic currency or payment card and receives foreign currency in cash.

How to Exchange Foreign Currency via International Wire Transfers

Cash on hand isn’t always necessary or practical. In these cases, international wire transfers are a common way for businesses and individuals to make cross-border payments, but there is no immediate exchange of currency like at a kiosk or ATM. Instead, the foreign currency conversion is taken care of on the back end of the transaction by the financial institution. There are two ways businesses and individuals can make a foreign currency wire transfer:

• Banks or credit unions can provide fast, secure, and reliable ways for businesses to make international payments. To exchange foreign currency through an international wire transfer, the sender must first fill out the proper paperwork. The bank applies the exchange rate, charges the sender a fee, and the sender makes the payment. The recipient then receives the payment in their desired currency.¹⁰ Bank wire transfers can usually be done in person, by phone, or online, and fees and rates depend on the financial institution and how many intermediary banks are used in the process.

 

• Dedicated online wire transfer services are an alternative to using a bank or credit union, but in essence, the process is the same: the sender sends their currency, the online service takes care of the exchange and transfer, and the recipient receives the amount in their desired currency. The main difference is that some wire transfer services do not use intermediary banks, so fees may be lower.¹¹

Currency Trading in the Foreign Exchange Market

Businesses that are particularly active in the international import-export market may wish to go beyond ordinary international payments in order to hedge against currency volatility. This is where the global forex market comes in.

Business of all sizes can use the forex market to exchange and pay suppliers in foreign currency, convert customer payments from other currencies, and even obtain foreign currency for an international sales trip. To hedge against FX risk, many businesses will purchase large amounts of currency on the spot. The forex market also offers a means of using more complex FX risk management tools, such as forward contracts, futures contracts, and options. These FX tools can help businesses develop foreign currency exchange strategies tailored to their international business needs.

But it’s not just businesses that use the forex market—anyone can trade currencies, from individual people to large banks and financial institutions.¹² For example, individual FX traders typically use the forex market to make money by selling currency at a higher price than they bought it for, whereas banks use it to exchange foreign currencies with one another.¹³

Typically, businesses and individuals who wish to trade in the forex market can use online trading platforms or seek out forex brokers and dealers.¹⁴