How is the exchange rate set?
How many ringgit do you need to buy a US dollar? What about a pound? What even is a Forint? (spoiler: it’s the currency of Hungary).
This ratio of how much a currency costs to buy another is called the exchange rate. It’s usually quoted in buy (how much in your currency it costs to buy) or sell (how much in your currency you receive if you sell) ratios.
Rate providers such as Bloomberg, Reuters, Visa, Mastercard, and banks all set their own rates. So there’s no single answer to the question; it depends on who you ask. Online aggregator sites like Google Finance and Yahoo usually display the mid-market rate as a guide. What’s that you may ask? It’s simply the mathematical median of the highest buy and lowest selling rate obtained from various sources.
The ‘real’ rate?
Millions of traders and bankers buying and selling currencies all the time make up the foreign exchange market. In this industry, the mid-market rate is meaningless as it is not something that can ever be obtained by either the buying or selling party.
As there are different sources of exchange rates from different providers, the rate obtained can vary temporarily. However, it generally should not vary much. MoneyMatch obtains our exchange rates (mid-rate) from xe.com, which is updated very frequently, 24 hours a day, 7 days a week.
When comparing exchange rates, one should watch out for the following:1. Misleading Pricing Wild offers of “mid-market” rates, only for you to be charged high variable and/or fixed fees, translating to a higher effective exchange rate. Similarly, for credit cards, it is common practice for some providers to charge you upfront at the mid-rate. As transactions may take several days, the charged rate may often be different from the original offered rate. It is the same concept as budget airlines vs full-fare airlines; you think you are getting a good deal when in fact, you may be getting ripped off at the end of the day! 2. A Set ‘Day Rate’ A lot of providers only update their rates thrice a day at most, as well as charging a high mark-up over the mid-market rate to compensate. You won’t be getting a good deal compared to real-time exchange rates like what we offer! 3. An Unfair Deal on your Currency By hiding behind low or even mid-market exchange rates offered, some providers are charging you high variable fees. The worst part is…by offering the “lowest rates”, these providers are likely at the very top of your web searches because they do not take fees into account!
Beware of hidden feesMoney transfer operators and banks often mark up the rate to cover their true costs as well as generate profits. As they are businesses, they need profits to pay salaries and continue providing customers with their services. So, watch out when a service promises a “mid-rate” or too-good-to-be-true exchange rates. Oftentimes, they hide those costs as variable fees or commissions. On top of that, they charge you a high transaction fee to use their service! Here at MoneyMatch, we always favor a transparent approach, with a very simple flat (not variable) fee structure. Moreover, we continuously provide the best rates possible based on our costs, which we keep low at scale by employing technology.
Compare before you sendAn informed customer should compare apples to apples. Namely, how much in your currency (net of fees) it costs to send the most amount of foreign currency. You can use our calculator to see how much money your recipient will receive. Compare that to the amount you’d get with your bank (selling TT), credit card, and other transfer services after including their fees. Finally, make your decision to go with the one which gives you the best bang for your ringgit! If you want more tips in comparing transfer rates, check out our article here!
What are your thoughts on how exchange rates fair, the All-in Rate? Let us know in the comments below! Have you created an account with MoneyMatch yet? Create an account here!