If you plan on travelling internationally, sooner or later you will have to deal with foreign exchange rates. For most people, the very term evokes confusion. However, with minimal effort you can get a basic understanding of foreign exchange rates. Once you understand the concept you’ll be able to exchange the currency easily and independently, with no help from an agent or a financial advisor.
- Find the correct exchange rate
- Do currency conversion using the exchange rates
- Compare the NBA exchange rates with other options available in Australia
Understanding Exchange Rates
Before we proceed to calculate the exchange rates, let’s understand the factors that determine the exchange rates. Three major factors affect the exchange rate. They are:
- The currency you want to buy/sell
- The type of transaction – whether you wish to buy or sell
- The product you prefer – cash, travel cards, IMT (International Money Transfer)
Let’s now consider these in detail.
While travelling abroad, you will be more concerned about how much foreign currency would your AUD fetch. As you probably know, this depends on the currency you wish to buy. See the table below:
As you can see, the value of 1AUD differs when converted to other currencies. For instance, 1AUD will fetch you 0.9245CAD, whereas the same 1AUD will fetch you only 0.5464GBP. This might be a bit confusing at the first glance. But, you need to know the rate of only the currency you’ll need for your travel. Hence, if you are travelling to Canada, you need to check the rate of the CAD alone. Similarly, for a trip to New Zealand, you need to check the rates of NZD only.
Once you have found the correct currency, the next step is to find the rate relevant to your need. It is important to remember that banks charge different rates for different transactions. The buying rate would differ from the selling rate.
For buying cash, you will have to refer to this chart. It means one AUD will fetch you 0.7243USD in cash.
If you were looking to sell some leftover money from your travel, you’ll need to refer to the table below:
So, if you are selling your foreign currency, say USD, 0.7969USD will fetch you 1AUD. As you can see, this rate is slightly different from the buying rate.
Products you need
We have already discussed that the exchange rate depends on the product you wish to buy/sell. For instance, if you were buying a NAB travel card, the cost for various currencies would be:
We have already seen the rates for hard cash in the tables elsewhere. When you compare, you’ll see that the rates differ according to the product you prefer.
NAB Internet Banking can be used for IMT and you can easily send money around the world in no time. In addition, this facility offers you the option of locking in your exchange rates day or night during a week.
Calculating Currency Conversions
Now that we have understood the factors that affect exchange rates, it is time to do some calculations and find out how it works in real life situation.
How much foreign currency will my Australian dollars fetch?
If you want to know how much amount of foreign currency will X amount of Australian dollars buy, here is the calculation:
Australian Dollars with you * Exchange rate = Foreign Currency you will receive
For example, if you have 2000AUD and want to buy USD at the rate of 0.7243USD, then your home currency will fetch 1484.6USD (2000*0.7243=1484.6)
What is the cost to buy a fixed amount of foreign currency?
There might be situations when you know you need exactly X amount of foreign currency. In that case, you can use the following formula to calculate the amount of AUD it will cost you:
The cost in Australian Dollar = the amount of currency you want to buy / exchange rate
So, if you need 1500 GBP, while the exchange rate is 0.5451, then you’ll have to spend 2751.78AUD (1500/0.5451=2751.78)
What is the cost if you send money overseas?
As explained above, if you know the exact amount of money you want to send oversees, the calculation to be used is the same as buying travel money (The cost in Australian Dollar = the amount of currency you want to buy / exchange rate).
What is the calculation while receiving currency from overseas?
For receiving money from overseas, use the following formula:
Foreign currency received/exchange rate = the amount of Australian Dollar you receive.
So, if you received 2000 GBP through a bank transfer, with an exchange rate of 0.6062, then the amount of AUD you’d receive would be 3299.24 (2000/0.6062=3299.24)
In short, it can be said that for converting AUD into foreign currencies and vice versa, the general rule will be:
- Convert AUD into foreign currency by Multiplying it by the exchange rate
- Convert foreign currency into AUD by dividing it by the exchange rate
Once you understand this fundamental idea, the rest becomes easy. However, remember that the actual amount you’ll receive will depend on the type of product too. So, if you buy a travel card, opt for IMT or exchange AUD for foreign currency in cash, there would be slight differences in the cost. Furthermore, you should always try to do currency exchange from branches than airports. Airports are generally costly when it comes to currency exchange.