Making cents of foreign exchange

Dear Michelle,

The big blue digital display hanging in the bank that shows exchange rates is confusing. How do I know which rate to look at when I’m exchanging money?

~Mystified by Exchange Rates

The first thing to consider is which foreign currency you want to exchange. Available currencies are listed in the first column of that exchange rate board. Please note that your bank may also offer additional currencies that are not posted. Ask your teller if you don’t see your currency listed.

Remember, at most banks in Korea, your currency exchange will always involve Korean won. You cannot, for example, change U.S. dollars directly into euros; you would have to first change your dollars into Korean won and then finally into euros.

The next factor to consider is whether you are exchanging cash or wiring money. The exchange rate board will have two main categories — “Cash” and “T/T”. 

T/T stands for Telegraphic Transfer, but may also be referred to as a wire transfer or an overseas remittance.

The T/T rates are always better than the cash rates, although there are fees involved in an overseas remittance that are not involved in a cash transaction. In fact, there are usually no fees to actually exchange cash – the bank’s fees are already included in the posted exchange rate. Also, you will always get a better rate when you exchange cash at a bank branch than at an airport exchange window.

Now, let’s assume you are at the bank to exchange cash. You will look up at the blue board under the “Cash” category and find that there are two columns: buying and selling. 

Let’s say you have Korean won but you are planning to visit the U.S. and want some dollars. Look at the board, find U.S. dollars, and look across, under the “Cash – Buying” column. There is your rate – posted in Korean won.

If it were the other way around and you had U.S. dollars with which you wanted to buy Korean won, you would look at the board, find U.S. dollars, and look under the “Cash – Selling” column to find your rate (in Korean won). Now, let’s assume you are wiring money. You will look up at the blue board under the “T/T” category where you will find that there are two columns: sending and receiving.

Let’s say you want to send (wire transfer) Australian dollars from your account here in Korea to your home account in Australia. Look at the board, find Australian dollars and look across under the “T/T – Sending” column. There is your rate – posted in Korean won.

Or maybe the situation is reversed and your client is sending money to your account in Korea from their account in Australia. Look at the board, find Australian dollars and look across under the “T/T – Receiving” heading to find the rate (in Korean won) you will receive when it’s sent. 

Now, there may be two more columns on that display board that we haven’t mentioned yet: the base rate column and the USD conversion rate column.

The base rate is a very important number, although more for the bank than for you. The Cash and T/T rates that affect you are based on the base rate, but you will never actually get quoted a rate from this column when you exchange or send money overseas at the bank. You can just think of the base rate as a way to quickly and easily compare rates across currencies – for example, it is the exchange rate we hear about in the news.

The last column is usually the USD conversion rate column. This is a handy reference that allows you to directly compare the base rate of your currency of interest in Korean won to the U.S. dollar base rate.

And last but not least, remember that you always need to bring your passport to the bank for any transaction that involves foreign currency.

“Dear Michelle: Banking Advice for Expats” is a monthly column written by Michelle Farnsworth. Michelle is the Foreign Client Relationship Manager in the Shinhan Bank Foreign Customer Department. Please visit the “Shinhan Expat Banking" on Facebook for more information. The banking information provided in this column is based on Shinhan Bank policies and may not be applicable to all banks in Korea. — Ed.