Hullo! In this article I aim to answer the question: what’s the difference between the interbank and client foreign exchange rate? This is intended for people about to change currencies, who may have heard something about the interbank rate but would like it explained in more detail.
The difference between the interbank and client foreign exchange rate is this: when you go to a bureau de change or look at the foreign exchange rates on somewhere like the BBC, those listed are the interbank rates.
These are the rates at which high street banks lend billions in currencies to each other on a daily basis, to complete their lending and funding requirements. Hence the name “inter-bank.” These rates are only available to the banks because they trade in such huge volumes, in the same way that “economies of scale” works with all products.
By comparison, client rates are those you receive from a bureau de change or foreign exchange broker as a private individual. The are always below the interbank rate, both because
- As a private individual, you’re not changing so much and so cannot benefit from the same economies of scale as high street banks.
- Bureaux de change and brokers can only function as businesses by buying currency close to the interbank rate, and then selling it to you beneath that price. Otherwise there’d be no business model.
The goal when changing currencies of course, is to get as close to that interbank rate as possible, so that the bureau de change is taking the smallest percentage profit from your transaction as you can find.
For instance then, one morning the pound-to-euro interbank exchange rate might be 1.20. If you use a bureau de change comparison site, you’ll receive a list of exchange rates that come as close to that as possible.
Hence, one bureau de change might be offering rates of 1.10, meaning they make something in the range of a 10-cent profit. But another might provide rates of 1.13, which is closer to the interbank rates and hence means you get more euros for your pounds. This is hence the better client exchange rate.
To recap then, in general the exchange rate changes in two ways:
- The interbank rate might change from 1.20 to 1.18 for instance.
- The client exchange rates that bureaux de change provide differ depending on their competitiveness.
Though you can’t do anything about the interbank rate changing (in fact, no one person or organisation can influence this) you can ensure you get the best client exchange rate, by comparing the rates available from brokers and bureaux de change. This should get you as close to the interbank rate as possible, meaning you get more euros (or whatever currency you’re buying) in your pocket.
I do hope that answers your question. Of course, if you have any other questions about changing currencies, feel free to visit us at foreign exchange specialist Pure FX.
Latest posts by Peter Christopher (see all)
- Forex Trading: What Are The Advantages You Can Get From It? - April 15, 2014
- Payday loans – Decision lies on you - April 11, 2014
- Getting Debt Consolidation -Follow Easy Steps - April 11, 2014