Let’s face it. When it comes to converting your foreign currencies into shekels or vice versa there are many choices out there. Is it best to convert money at the bank? At the post office? With a money changer?  At an ATM? Using a foreign credit card or ATM ? Online? What about foreign checks? Where is the best place to cash them if at all?

Every money changer out there is claiming to offer you the best rates and for some reason many are advertising zero commissions on foreign currency conversions. How these businesses make money without charging anything is something that is left a mystery to the unknowing consumer. Everyone has their opinion, but each opinion is generally based on an experience of a consumer who was ripped off less than the consumer seeking his advice. What are the actual facts that determine what the exchange rate really should be? No one is advertising that they are ripping you off. Most seasoned travelers or international commuters would tell you that the airport would not be the best place to convert your currencies but where is the best place to do so?

The first thing consumers ought to know is how pricing in the foreign exchange market works. It is actually very surprising that many consumers have no clue what a fair foreign exchange rate is given the fact that foreign currency prices are so transparent and accessible these days.

The consumer also needs to be aware of the 2 types of transactions costs that affect the pricing of foreign currencies to the consumer: 1) There is the actual fairness of the exchange rate the consumer is getting for their foreign currency at a specific time based on the free market and 2) There are additional processing fees that a consumer may pay when effectuating a currency conversion. E.g. a check processing fee, check cashing fee or a wire fee etc.  Most consumers know what to make of processing fees but do not know where to start when it comes to assessing whether an exchange rate is fair. Just because the person in line in front of you at the bank got the same exchange rate as you does not mean that the rate the bank gave you is fair. The exchange rate you receive must be in sync with the free market even if the bank you are standing in line in has trillions of shekels in it.

Let’s start with a basic understanding of how the pricing of foreign currencies works. Foreign currencies trade like stocks and commodities and often trade around the clock because of the different time zones that exist around the world. They generally are not fixed by any government and move based on the supply and demand of the market at any given time. It is not considered unfair on the part of the money changer industry to pay a consumer only 3.40 shekels for every US dollar sold if that is the market price of US Dollars vs. Shekels at such given time. Supply and demand determines this not the emotionally charged opinion of the consumer.

Foreign currencies are generally something that is needed throughout the world to conduct international trade at all times of the day and year and if in China they need to buy the US dollar during their daylight hours to export goods from the US they will not wait for America to awake from its slumber before buying US dollars. Foreign markets demand access to foreign currencies during their business hours.  Most foreign currency markets are closed on the weekends but the weekend in Asia ends earlier than the weekend in the US.

There is a Bid and an Ask at just about every given moment on a foreign currency just like with stocks. Given that a foreign currency is money as well the price of one currency is paired up against another currency to describe the price of the currency that the consumer wants to buy or sell.  For example, when most people in Israel say that the Shekel is trading at 3.60, this means that one US Dollar will buy you 3.60 Shekels if you are in the market to sell US dollars.  The Bid is the highest market price that the market will buy a foreign currency at a given time and an Ask or an Offer is the lowest market price that the market will sell a foreign currency at a given time. Usually there is a differential between the Bid and an Ask which is known as a Spread. Just because one US dollar will buy you 3.60 Shekels, 3.60 Shekels will most likely not buy you One US dollar at the same given time. If you would like to buy One US dollar with your Shekels it may cost you 3.62 Shekels. The 2 agurot differential between what it cost to buy shekels vs. sell Shekels would be the Spread. The Spread is where market makers who provide a liquid foreign currency market make their money. The market makers are the shadchanim who bring buyers and sellers together and make a few agurot while doing so by buying at the Bid and selling at the Ask. The consumer who is not in the market and not a professional foreign currency shadchan can only buy at the Ask (the higher price) and sell at the Bid (the lower price).

Every foreign currency that is traded, including the Israeli Shekel, has an accepted spread. More volatile or illiquid currencies have much wider spreads because the foreign currency shadchanim need to make more money on a currency that is traded less often or that is more volatile in order to stay in business.

If the following few paragraphs bored you or you did not follow that is ok. All the consumer really needs to know if the Spread they are being offered by the bank or money changer is fair. If the market makers are selling all available Shekels at 3.60 for every US dollar and charging  3.62 to buy all available US dollars, why is your bank only giving you 3.50  Shekels for your US dollar and why are they charging you 3.70 shekels if you want to buy US dollars with your Shekels? Are they justified in widening the free market spread to such a degree?

So how does the consumer know what the Spread should really be and how does the consumer know that a money changer is giving them a fair exchange rate? This is where what is known as the “Middle Rate” comes into play. People who buy Shekels in Israel often ask about this mysterious Middle Rate and how far away the price they are getting from their money changer is from this cryptic Middle Rate. In the free market the Middle Rate is generally an imaginary number. It is a rate that is just the average of the Bid and Ask. It is a rate that could theoretically exist if no foreign currency shadchanim wanted a piece of the action when they buy or sell foreign currencies for profit. Hypothetically speaking if there would be no differential in the marketplace between what it cost to buy shekels vs. sell shekels at a given time the Middle Rate could be that number. It is a number with a zero spread between the Bid and Ask.

Once the consumer knows what the Middle Rate is, they can ask their money changer how far below the Middle Rate they are getting when they buy Shekels and how far above the Middle Rate are they paying when they buy US dollars. If the consumer interviews 10 money changers who all say that they are selling Shekels at 3 agurot below the Middle Rate and the 11th money changer is selling Shekels at 10 agurot below the middle rate, the consumer is advised to go elsewhere.

Service and safety of funds is also a big factor however a consumer is advised to never buy shekels if the rate they are getting on their US dollars is more than 2-3 agurot maximum below the Middle Rate. For Canadian Dollars Euros and Pounds the pricing should not be more than 2.5-3.5 agurot below the middle rate because as exotic as the bank or money changer may make you feel these currencies are, the market spread for these “exotic” currencies is no more than 15% greater than the US Dollar Shekel currency pair. The shekels the consumer should receive should be as close to the Middle Rate as possible. Of course this also depends on the amount of money the consumer is exchanging and the consumer needs to be realistic on pricing if they are converting say $10.  The money changer needs to make a living and one of the sources of income for the money changer is buying shekels at the wholesale rate and selling them for more to the consumer. If a consumer is exchanging several hundreds of thousands of US dollars than he consumer has every right to be more demanding in getting the best possible pricing. One again, the closer you are to the Middle Rate the better. The Middle Rate for Shekel Currency Pairs can be found online at many websites.

The consumer should be aware of the Middle Rate when buying Shekels and always ask where the pricing of the money changer or bank is with respect to the Middle Rate. Again, it should be as close as realistically possible to the Middle Rate.

The consumer should especially be wary if a money changer claims to charge zero fees and commissions. In all likelihood such a money changer is just widening the spread and padding prices more than they should be and masking their true intentions by claiming not to be charging any other fees. The consumer needs to be aware of the bottom line price in comparison to the market. A money changer who pads prices more than accepted by the industry is really charging a fee in the form of worse prices. The consumer should not be misled by this marketing ploy and go to the money changer with knowledge of the free robux Middle Rate.

Consumers also need to find out what other fees are involved besides for the exchange rate they are getting. Many foreign credit card companies give you very good exchange rates when you make a purchase overseas, however they often charge you a foreign currency or convenience fee that wipes away the fair rate you think you got by using the card.

Money changers may give you a great rate but may charge you all sorts of extra fees to cash a foreign check or initiate a foreign wire. These fees are often justified. Cashing a check for example certainly bears risk with it and check cashing and wire transfers involves other costs to the money changers, however the consumer needs to know when such fees are not commonplace and when the consumer can do better based on the marketplace. The credit-worthy consumer is advised not to pay a money changer more than 3% to cash checks. Negotiating down the fees with your money changer would also be a good idea because there is a lot of competition in the marketplace.

For larger sums it generally always pays for the consumer to make a wire or ACH transfer to the bank or money changer converting funds for them. For example, if you are converting $100 a 3% check cashing fee will only cost you $3.  Paying a bank wiring fee of say $25 or more to convert  $100 would not be justified. If the sum that you needed to convert was say $25,000, a 3% check cashing fee would amount to a whopping $750!! The wiring fee that you would pay your bank to wire the $25,000 would never come even close to $250 (a wire should not cost more than $50 USD and an ACH transfer even less). In my opinion, the largest check that should be cashed at a bank or money changer should be $10,000. Otherwise wires or ACH transfers are the way to go if the consumer wants to save money. Of course not all people and institutions are set up for international wire transfers and ACHs, but it should really be something anyone who converts foreign currencies should look into and take into consideration if they want to save money.

In conclusion the educated consumer is the wiser consumer who can avoid pitfalls in the foreign exchange market. Know what the Middle Rate is and specifically ask what additional hidden or open fees are being charged by the money changer. The consumer should understand after all what they are paying for to be able to make the right and well-informed decision.

Gershon Kayman, Esq. is a seasoned real estate lawyer both in NY and in Israel. He can be reached at kaymanlaw@gmail.com