Finance, Forex and Investments

Why does a Bureau de change buy currency from you for more than the exchange rate?

This seems to make no sense to me. For example, they say they buy the dollar(to the pound) at 2.1xx, higher than the exchange rate, and they sell it at 1.8xx. Why is it they give you more than it is worth?

Public Comments

1. They do this to make a profit by adjusting the exchange rate in their favour depending on whether they are buying the currency in question or selling it to you. They definitely do not give you more that it's worth. Using your example of Pound (GBP) to Dollar (USD), I'll illustrate: Let's say that the true exchange rate for Pound to Dollar is 1.95, i.e. 1GBP = 1.95USD. If you had 100 GBP and you wanted to convert it to Dollars using the true exchange rate, you would get 195 dollars in return. i.e. 100 multiplied by 1.95 = 195 If you had 100 Dollars and you wanted to convert them to Pounds using the true exchange rate you would get 51.28 Pounds in return. i.e. 100 divided by 1.95 = 51.28 We will use the two values above to compare to what Bureau de Change would give to you using their rates.... Now let's say that the Bureau de Change advertise the rates as per your example for GBP (to/from the Dollar) as follows: Buy = 2.10 Sell = 1.80 Using the same 100 USD and 100 GBP examples as I did above, here is what you would get back from the Bureau de Change using their rates: If you had 100 GBP and you wanted to convert it to Dollars at Bureau de Change (i.e. they are SELLing Dollars to you), you would get 180 Dollars in return. i.e. 100 multiplied by 1.80 = 180 If you had 100 USD and you wanted to convert it to Pounds at Bureau de Change (i.e. they are BUYing Dollars from you), you would get 47.61 Pounds in return. i.e. 100 divided by 2.10 = 47.61 Now, if you compare that to what values you got under the true exchange rate above, you will see that in both the Buy and the Sell transaction you are ending up with less money. The difference is the profit for Bureau de Change (plus any fees or commission they may also sponge from you!!)