Currency Differences

[redman]

This has probably been flogged to death before, but can some one explain something which confuses me.

When in Thailand recently, I was cashing UK pounds and found that the Banks paid an inferior rate to the small moneychanger shops. Not much, but sometimes .5 baht per pound. I would have thought it to be the other way round, as surely the moneychanger has to sell the money later on at the bank.

Tonight on www.Oanda.com, it shows a convertion of 1 USD for 32.74134 baht, but Bangkok Bank shows 32.29 baht

Similarly, OAnda shows GB Pounds at 64.45657 baht, while Bangkok Bank is 62.99 baht.

Won't stop me from sleeping, but can anyone explain why the difference?

And please no replies about "if you are worried about losing the odd 50 satang" etc. etc., it doesn't bother me in that way, just confuses me

[backflip]

The mom-and-pop exchangers have a substantially lower overhead that a banking institution and can provide a slightly better rate. Some smaller exchanges can provide a substantially better rate, than other exchanges and banks. When I entered Thailand (from China), I found one exchange that gave me a 30% better THB-to-RMB rate than other exchanges and banks. I have no idea how they managed to do that.

[redman]

I can understand the bit about the overheads, but at the end of the day, surely the small moneychanger has to go to the bank with his foreign currency to change it back into baht. Unless he gets a special "business" rate. And I still don't know how Forex websites can show so much difference from the bank (1.5 baht per pound)

[jbaldwin]

The rate quoted on Oanda is the inter bank rate of large transactions (normally $1 million plus). The rate on Bangkok Bank is the rate the bank charges its customer for small transaction. It is normally possible to negociate better rates for trades of more than $50,000. Banks are not charities. If you go to a supermarket you do not expect to pay the same price as the supermarket pays for its products.

[redman]

Thanks for that, I didn't know that Forex sites were only meant for the larger transactions. But it clears it up fro me

[ajarnmark]

I can understand the bit about the overheads, but at the end of the day, surely the small moneychanger has to go to the bank with his foreign currency to change it back into baht. Unless he gets a special "business" rate. And I still don't know how Forex websites can show so much difference from the bank (1.5 baht per pound)

Why do they have to goto bank at the end of the day?

Assuming you want to start money exchange business, what will you do?

Assuming following are the rates

Buying Selling

Bank 31.5 32.0

Keep THB1,000,000 with you and start business. Your first customer Mr. A comes with $1,000 you offered him buying price of 31.6 and he accepted coz, you are offering him higher than bank, right? Now you have THB abd USD with you. Many customers come with verious currencies and you are buying foreign currencies, right? So your THB inventory will become zero soon, right?

But there will be some customers who want to buy USD, now you can sell USD for 31.9 coz you have bought it for 31.6. Makes sense? Think abuot a turnover of 1,000 customers a day. If you are dealing with only $100,000 transactions per day, you could easily make 30,000 baht (100,000x0.3). Profitable, insnt it?

To verify this, ask for unpopular currencies such as Indian Rupee etc and see how prices are significantly worse than banks.

The key is never goto bank to buy or sell their foreign exchange. They generate all their foreign currency reserves from their own transactions.