Foreign exchange for beginners

‘Go to that bank for the best rates’ was my first introduction to foreign exchange. I was preparing to study abroad in Australia and was confused by foreign exchange in general.

Aren’t all foreign exchange rates equal? Can’t I just use a credit card? And why do so many foreign exchange dealers claim they have the ‘lowest rates’ and ‘no bank fees’?

For students looking to undertake studies abroad for the first time, here are some things to look out for when paying university fees in another currency.

What is foreign exchange?

Foreign exchange is basically the trading of currencies. What is unique about foreign exchange is the fact that there is no central marketplace for trading, but instead currency exchange is conducted over-the-counter. 

For people like you and me, it means every dealer or bank can offer a different rate, so there is no ‘one’ exchange rate. So you might want to shop around for a better exchange rate if you’ll be making a large international payment such as tuition fees. Typically, the easier the payment process, the more you will pay in expensive exchange rates.

$0 Bank Fees

Banks usually charge a wire receiving fee. Or a transfer fee. Or a transaction fee.

A lot of foreign exchange dealers which offer no bank fees actually charge a higher exchange rate.

For example, if Bank A offers a rate of 2 MYR = 1AUD but charges a bank fee of 1AUD, the total cost of a 10AUD payment would be 22MYR.

Bank B might offer ‘No Bank Fees!’ but at a rate of 2.5MYR = 1AUD. Hence the total cost of a 10AUD payment would be 25MYR with Bank B, which is $3 more than Bank A despite not charging bank fees.

Be aware

‘No commissions!’, ‘Best rate!’ and other marketing terms like these should not be taken at face value. Always be sure to inquire about any costs or fees associated with making an international payment. (NexPay has a nifty little calculator which gives you an accurate total amount – no hidden costs)

Just by spending a few minutes doing simple cost comparison, you could save thousands off your education costs!