Exchange rates

Understanding exchange rates can be confusing due to the technical terms used in foreign currency exchange. Here are some common terms explained to help you better understand how exchange rates work:

• Buy Rate – This is the rate at which we buy foreign currency back from you into your local currency. For example, if you're returning from Japan, we would exchange your leftover Japanese yen back into British pounds at the buy rate of the day.
• Sell Rate – This is the rate at which we sell foreign currency in exchange for local currency. If you’re travelling to Turkey, for example, you would exchange British pounds for Turkish lira at the sell rate.
• Spot Rate – Also known as the ‘interbank rate,’ this is the exchange rate that large banks and financial institutions use when trading significant amounts of currency with one another. It is often lower than the rates available to consumers.
• Currency Pair – Exchange rates are quoted as pairs of currencies. A currency pair shows how much of one currency you need to buy a unit of another. For example, GBP/EUR refers to how many euros one British pound can buy.
• Cross Rate – This is the rate given when exchanging currencies that don’t involve your local currency. For instance, converting Australian dollars directly to Canadian dollars would use a cross rate if you’re based in the UK.
• Commission – Some foreign exchange providers charge a fee, known as commission, for converting one currency to another. Always check whether this fee applies when comparing rates.
• Holiday Money Rate (or Tourist Rate) – This is another term for the sell rate, often used when referring to buying currency for travel purposes.
• Spread – The difference between the buy rate and the sell rate is known as the spread. This is how foreign exchange providers cover costs and make a profit.
• Indirect Quotation – In an indirect quotation, the local currency (British pounds) is the base unit, and the foreign currency is the variable. For example, when you're in the UK and exchanging British pounds (GBP) for US dollars (USD), an indirect quote would show how many US dollars you would receive for each British pound (e.g., 1 GBP = 1.25 USD). This means for every £1 you exchange, you would get $1.25.
• Direct Quotation – In a direct quotation, the foreign currency (in this case, British pounds) is the base unit, and the local currency is the variable. For example, if you travel to the UAE and exchange your British pounds (GBP) for UAE dirhams (AED) locally, a direct quote would show how many British pounds you would need to buy one dirham (e.g., 1 AED = 0.21 GBP). In this case, the dirham is the local currency, and the British pound is treated as the foreign currency. This method of quoting exchange rates is commonly used in countries like the UAE, where local prices are quoted in terms of how much foreign currency (such as GBP) is needed to purchase a unit of their currency.

When topping up our travel money card overseas, this does not apply. Regardless of where you are in the world, an indirect quotation will be used. This means you will always see how many units of the foreign currency you will receive for each British pound, making it easier to understand your exchange rate while using the card.

By understanding these common terms, you’ll be better equipped to read exchange rates and make informed decisions when exchanging your money.

To calculate exchange rates on our website and within the UK, we use indirect quotation. This means that when you’re exchanging British pounds (GBP) for a foreign currency, the rate will show how many units of the foreign currency you will receive for every £1. For example, if the exchange rate between British pounds and US dollars (USD) is 1.25, it means £1 is worth $1.25. So, if you have £100, you would receive $125 at an exchange rate of 1.25.

This method of calculating exchange rates is the standard in the UK, making it easy to understand how much foreign currency you will get for each British pound.

Direct quotations are only used in some countries where the foreign currency is the base unit. For example, if you are in the UAE and exchanging British pounds for UAE dirhams (AED) at a local foreign exchange bureau, a direct quotation would be used. This would show how many British pounds are needed to buy one dirham. However, when using our website or services in the UK, you will always see the indirect quotation, showing how much foreign currency you will get for each £1 spent.

Exchange rates change due to a variety of factors affecting the value of a currency. These include:

• Economic performance: Stronger economies tend to have stronger currencies.
• Interest rates: Countries with higher interest rates often attract more foreign investment, increasing demand for the currency.
• Political stability: Political uncertainty can weaken a currency as investors move to safer markets.
• Supply and demand: When demand for a currency increases, its value tends to rise, and when demand drops, its value typically falls.

These factors, among others, cause exchange rates to fluctuate in the global market.

You can lock in your exchange rate in advance when loading currency onto a travel money card. This means the exchange rate is fixed for the initial load, giving you certainty about how much foreign currency you’ll receive. However, for any subsequent top-ups, the exchange rate will be set at the prevailing rate at the time of the transaction.

Tourist exchange rates are typically different from the market spot rate because of additional costs incurred by foreign exchange providers. The spot rate is the rate at which banks and financial institutions trade large amounts of currency with each other, and it is generally more favourable.

For individual travellers, exchange providers add a spread to cover operational costs, such as processing, handling, and risk management. This means the rate you receive for travel money is usually less favourable than the market spot rate. Always compare rates and consider whether commission or fees are also charged.

Yes, it can be beneficial to shop around and compare exchange rates from different providers. Foreign exchange providers offer varying rates depending on their fees, commissions, and the spread between their buy and sell rates. By comparing providers, you may find better value for your money, especially if you’re exchanging a large amount.

Look for online tools or apps that compare exchange rates from multiple sources, and check if any additional fees apply to get the best overall deal.

The spot rate is the current exchange rate at which large financial institutions and banks trade significant amounts of currency with one another. It’s also referred to as the interbank rate because it’s the rate banks use when trading directly with each other in the global foreign exchange (Forex) market.

For consumers, the spot rate is generally not available for everyday currency exchanges, as foreign exchange providers add a margin to cover costs and make a profit. However, it’s useful to know the spot rate as a benchmark for comparing the rates you receive when exchanging currency for travel or other purposes.

Whether it’s better for exchange rates to go up or down depends on what you’re doing with the currency.

• If you’re buying foreign currency: (e.g., for a holiday or payment for services), you generally want the exchange rate to go up. A higher exchange rate means your local currency (British pounds) is stronger, so you’ll get more foreign currency for every £1 exchanged.
• If you’re selling foreign currency: (e.g., converting leftover holiday money back to British pounds), you’ll benefit when the exchange rate goes down, as this would mean the foreign currency has appreciated relative to your local currency, giving you more pounds for each unit of the foreign currency.

In short, if you’re buying foreign currency, a higher exchange rate is better, while if you’re selling foreign currency, a lower exchange rate is more favourable.