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Exchange rates: A guide to buying travel money for your next holiday

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When planning a holiday, everyone wants to get the best value for money. We all know that biding our time and carrying out some research can help us to save on flights and accommodation. But, have you ever considered that putting just as much thought into buying your foreign currency could help you to get a lot more for your money?

For the most part, it’s incredibly difficult to guess exactly what the exchange rates will look like on any given day. However, if you ensure that you’re well-informed and are willing to wait for the right time to exchange your money, you could end up saving hundreds of pounds.

To help you to shop wisely and get the best deal possible, we’ve put together a guide that covers everything you need to know about exchange rates. Here, you’ll find the answers to frequently asked questions, such as:


What is an exchange rate?

An exchange rate (also known as a “foreign exchange rate” or “forex rate”) is how much one currency is worth in terms of another. For example, the Great British pound’s (GBP) exchange rate will tell you how much one pound is worth in a foreign currency, and vice versa. So, if you see that the GBP to Euro exchange rate is 1.15, you will receive €1.15 for every £1 you choose to exchange.

There are two main types of exchange rate systems: floating and fixed (also known as pegged).


What is the current exchange rate?

Exchange rates are fluctuating all of the time, and it’s difficult to predict what they will look like on any given day. However, you can calculate how much your money is worth in a foreign currency today using our travel money service. And, if you’re happy with the rate you’re given, you can order it online to be delivered to your local store.

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When is the best time to exchange your money?

Many holidaymakers leave it until the last minute to exchange their money, but this often means that they don’t get the best value for their money. This is reflected in the fact that buying your holiday money at the airport is the least cost-effective option. You pay a premium for the convenience, and are also at the mercy of that day’s exchange rates, whatever they might be.

Instead, you should bide your time to get the best deal for your money. It’s incredibly difficult to accurately predict how exchange rates will change from day to day. But, if you make an effort to check them every few days, you’ll be able to get a decent idea of what a good rate looks like.

Better yet, consider downloading a smartphone app that will give you live updates and send you notifications if there are any significant shifts. If this is something you’re interested in, XE offers reliable currency apps for iPhones, iPads, Androids, Blackberries and more that will keep you up to date.


Where should I buy my travel money?

You will usually find that exchange rates are better online than on the high street, and they’re guaranteed to beat those you’ll find at the airport. Therefore, if you want to get the most foreign currency for your money, it’s wise to order it online.

However, you should keep in mind that there will be a maximum amount of money that providers will allow you to exchange over the internet. For example, we accept maximum order of £2,500 when you order travel money online from us.

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Should I buy foreign currency with a debit or credit card?

If you decide to exchange your money in the UK using a debit card, your bank will treat this like any other cash withdrawal or purchase. However, if you use a credit card, you might be charged interest — even if you pay off the amount in full. Additionally, most credit card and travel money providers will charge you extra for using one.


Who determines currency exchange rates?

Most of the world’s major economies have floating exchange rates, which means that they are set by the foreign exchange market, depending on supply and demand. However, if you’re going to a country with a fixed or pegged exchange rate — for example, Bulgaria, Hong Kong, or the United Arab Emirates — these will have been set by the country’s government or central bank.

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What affects foreign exchange rates?

There are a whole host of factors that can affect exchange rates, and they are typically concerned with how healthy the trading relationship is between two countries. As foreign exchange rates can be influenced by such a wide range of things, it’s difficult for even the most seasoned of financial experts to accurately estimate what they are likely to be on any given day. But, to give you some idea of what goes into deciding the exchange rates of currencies, here are six of the main factors.



Typically, a country with a consistently lower inflation rate will exhibit a rising currency value. This is because its purchasing power will increase over time relative to other currencies. In contrast, countries with higher levels of inflation will usually see their currencies depreciate in relation to their trading partners’.

Inflation is much more likely to have a negative effect on foreign exchange rates than a positive one. This means that low inflation doesn’t guarantee a high exchange rate, but a higher inflation rate is very likely to negatively affect a currency’s value.

Interest rates

Interest rates, inflation, and exchange rates are closely related. So, if central banks make significant changes to their interest rates, it can attract foreign capital, which causes exchange rates to rise.


Current account deficits

A country’s current account shows the balance of trade between the nation and its trading partners. It reflects all of the payments exchanged between these countries for goods, services, interest, and dividends.

If a country’s current account has a positive balance, this indicates that the nation in question is a net lender to the rest of the world. Alternatively, a negative current account balance indicates that a country is a net borrower from the rest of the world.

Essentially, the currencies of countries with a positive current account balance are typically more valuable. Therefore, they will offer a higher exchange rate.


Public debt

In order to pay for public sector projects and government funding, countries engage in large-scale deficit financing. In simple terms, this means that they borrow money from other nations to cover their costs. While this helps to support the domestic economy, countries with large public deficits and debts are less attractive to foreign investors. This is because large debts usually encourage inflation and, as outlined above, nations with higher levels of inflation tend to see their currencies depreciate. As a result, their exchange rates will usually be lower.


Terms of trade

Terms of trade is a measure of a nation’s relative competitiveness. In the simplest of terms, it is the average price of a country’s exports divided by the average price of its imports. An increase in terms of trade reflects a higher demand for a country’s exports, and this usually results in rising revenues from trading internationally. This, in turn, increases the value of the country’s currency, which helps its exchange rate to rise.


Political stability

A country’s political state can have a huge effect on how valuable its currency is at any given time. Unsurprisingly, a nation with a lower risk of political turmoil tends to be more attractive to foreign investors. This means that a particularly stable country’s currency will usually be more valuable and, therefore, their exchange rates will often be higher.


How quickly can exchange rates change?

Exchange rates are always changing, as they are in constant fluctuation. During particularly turbulent times, they can change quite dramatically from one week to the next. So, if you’ve booked a holiday, you should monitor the exchange rates for a few months before you go. This will give you the information you’ll need to buy your foreign currency when you’re likely to get the best deal.


What kind of foreign exchange services does H&T offer?

At H&T, you can order foreign currencies online. The travel money you’ve bought will then be delivered free of charge to your local store for collection.

Euros and US dollars are available to be picked up the next day, and the 67 other currencies we offer can be collected in just 72 hours.

We also offer currency buy-back at a guaranteed price, which means you won’t be left out of pocket if you return home with some foreign currency that’s leftover from your trip.

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If you aren’t used to buying travelling money, the process can seem quite complicated. To help you out, we’ve put together a glossary that explains all of the terms you might need to know.


What are floating exchange rates?

Floating exchange rates — also known as fluctuating or flexible exchange rates — are allowed to rise and fall in response to shifts in the foreign exchange market. They are typically based on supply and demand compared to other currencies.

Most of the world’s major economies have floating currencies and exchange rates that are set by the foreign exchange market.


What are fixed (or pegged) exchange rates?

A fixed exchange rate exists when a country’s government or central bank has decided to tie its official exchange rate to the value of another country’s currency, or the price of gold. The purpose of this is to keep the value of a country’s currency within a narrow band. Typically, countries with developing economies will have fixed exchange rates, while most major industrialised nations have floating exchange rate systems.

In the grand scheme of things, fixed rates are attractive for importers and exporters, as they offer a sense of certainty. They also allow governments to maintain low inflation and, in the long run, this tends to help exchange rates rise, which stimulates increased trade and investment.

Investment Frontier has a list of countries with fixed currency exchange rates, which you can take a look at to find out how your destination’s exchange rates are set.


What is the foreign exchange market?

The foreign exchange market is also known as the forex, FX, or currency market. It is essentially a stock market where traders can buy, sell, and exchange currencies.

The foreign exchange market is made up of the likes of banks, commercial companies, investment management firms, and retail forex brokers and investors. It operates 24 hours a day, Monday to Friday, which is why exchange rates often seem to stagnate over the weekend.


What is a buy rate?

Sometimes travellers return home with some foreign currency left over. A buy rate is how much you can sell this back to companies like us for. So, for example, if you had just returned from France, we would exchange your euros for pounds at a buy rate.


What is a sell rate?

This is the rate at which you will be sold foreign currencies. For example, if you were planning a holiday to the US, we would exchange your pounds for US dollars at the sell rate.


What is a spot rate?

The spot rate is known more formally as the interbank rate. It is the rate that banks or large financial institutions are given when trading significant amounts of foreign currency. Tourists cannot buy their travel money at this rate, as they exchange much smaller amounts. This is similar to how there are wholesale and retail prices for goods.


What is a cross-rate?

This is the rate you’re given if you make an exchange that doesn’t involve the local currency. For example, if you were in the UK and wanted to exchange US dollars for euros, we would exchange your currency from dollars to pounds, and then pounds to euros. Therefore, you would be given a cross-rate for this transaction.


What is commission?

Commission is a common fee that foreign-exchange providers charge for exchanging currencies. This is added as either a flat fee, or a percentage of the amount you exchange.


What does buy-back mean?

Some foreign-exchange providers will allow you to sell your leftover foreign currency back to them at a guaranteed rate. This means that, if you return home with any travel money left, you’ll know how much you’re going to get back in pounds.

When you’re preparing to jet off on your next holiday, ensure you put some extra thought into buying your travel money. By monitoring the exchange rates, biding your time, and striking when you’re likely to get the best deal, you could end up with a lot more money in your travel wallet.