Exchange Rates and Currency Exchange

Currencies, exchange rates, and currency cross-tables all raise issues regarding decimals and financial fees.

1. Decimals in Currencies. Not all currencies in the world have decimals. Here in North America, $MXN$$, $US$$, and $C$$ have two decimals. Mexicans call those decimals centavos while Canadians and Americans call them cents. Australia and the European countries using the euro also have cents. However, the Japanese yen does not have any decimals in its currency. If you are unsure about the usage of decimals, perform a quick Internet search to clarify the issue.
2. Financial Fees. Technically, the rates in a cross-rate table are known as mid-rates. A mid-rate is an exchange rate that does not involve or provide for any charges for currency conversion. When you convert currencies, you need to involve a financial organization, which will charge for its services.
   1. Sell Rates. When you go to a bank and convert your domestic money to a foreign currency, the bank charges you a sell rate, which is the rate at which a foreign currency is sold. When you exchange your money, think of this much like a purchase at a store – the bank's product is the foreign currency and the price it charges is marked up to its selling price. The sell rate is always higher than the mid-rate in terms of $C$$ per unit of foreign currency and thus is always lower than the mid-rate in terms of foreign currency per unit of $C$$. For example, the exchange rate of $C$$ per $US$$ is $0.9787$ (you always look up the "per currency" column that you are purchasing). This means it will cost you $C$ 0.9787$ to purchase $US $1.00$. The bank, though, will sell you this money for a sell rate that is higher, say $$0.9987$. This means it will cost you an extra $C$ 0.02$ per $US $$ to exchange the money. That $$0.02$ difference is the fee from the bank for its services, and it is how the bank makes a profit on the transaction.
   2. Buy Rates. When you go to a bank and convert your foreign currency back into your domestic money, the bank charges you a buy rate, which is the rate at which a foreign currency is purchased. The buy rate is always lower than the mid-rate in terms of $C$$ per unit of foreign currency and thus is always higher than the mid-rate in terms of foreign currency per unit of $C$$. Using the same example as above, if you want to take your $US$1.00$ to the bank and convert it back to Canadian funds, the bank charges you a buy rate that is lower, say $$0.9587$. In other words, you receive $C$ 0.02$ less per $US $$. Again, the $$0.02$ difference is the bank's fee for making the currency exchange on your behalf.