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Foreign Currency Explained

Guilty of leaving your currency exchange to the last minute? You’re not alone!

With its fancy phrases and unfamiliar terms, the process of buying currency confuses a lot of people. Let’s spell things out so you can get your money sorted and get on with your holiday. These foreign currency tips will help you understand what’s what in the world of Forex.

Foreign exchange rates definition

Foreign exchange rates are figures that show how much it will cost to buy a certain currency with another currency. These rates are commonly expressed as 1 unit of one currency = X units of another currency. For example, an NZD/JPY exchange rate shows how many Japanese yens you could buy with one New Zealand dollar. 

How does currency exchange work?

When you need cash in a foreign currency, you can buy this from a Forex retailer (like Travel Money NZ). Simply choose how much of the foreign currency you require and pay the equivalent amount in Kiwi dollars.

How does the currency market work?

A lot like other marketplaces, that’s how. The rates for currencies rise and fall as supply and demand rise and fall (which is why exchange rates change so often). 

Various factors can influence the demand for a particular currency, such as:

  • Interest rates
  • Political factors
  • Economic performance
  • Trade data.

Exchange rates are only influenced by these factors in countries that use a floating system (like New Zealand, the UK and the US). Some countries (such as Hong Kong, Cuba and the UAE) use a pegged system, which means their currency is directly fixed to another country’s currency (usually the US dollar).

How can I tell if a rate will go up or down?

We wish we knew! Exchange rates are largely unpredictable. You can look at historical data and trends, but at the end of the day you’ll still be making a guess – no matter how ‘educated’ that guess might be.

So when should I exchange my currency then?

There’s simply no right answer to this. Sorry ‘bout that. The rate might improve the day after you buy your foreign currency. Or it could be worse.

From a practical point of view, we suggest exchanging at least a couple of days before your trip. This way you can avoid airport fees. Some uncommon currencies can take up to 2 weeks to deliver and collect, so come and see us early if you’re heading somewhere off the beaten track.

What’s the difference between buying currency and selling currency?

Glad you asked. You may have noticed that Travel Money NZ and other currency retailers display both a sell rate and a buy rate. 

  • The sell rate is the rate at which we sell foreign currencies. Look at this if you’re using Kiwi dollars to buy another currency.
  • The buy rate is the rate at which we buy back a foreign currency and give you New Zealand dollars. Look at this if you’ve gotten back from your trip and you have leftover foreign banknotes you’d like to exchange. 

Your rates are different to the rates I saw on TV this morning. What gives?

TV programs show wholesale rates, which are only available to large financial institutions and organisations. Unless you’re buying and selling millions of dollars at a time, you’ll be purchasing your currency at retail rates, which are what we display in store and on our website.

Will I have to pay extra fees or a commission though?

Some foreign exchange retailers charge fees or a commission when you buy currency from them. Travel Money NZ offers our services with no fees or commission – the price you see is the price you get.