This information is designed to help our Personal Banking Customers understand foreign currency exchanges.
Foreign currency refers to any currency other than Canadian Dollars. A foreign currency exchange occurs when you buy foreign currency from us or when we buy foreign currency from you.
An exchange rate is the price at which one currency is bought or sold for another. For example, the exchange rate dictates how many Canadian Dollars are needed to purchase U.S. Dollars. It’s important to know that exchange rates are not static; they change throughout the day due to market fluctuations.
How Foreign Exchange Transactions Work
We establish the exchange rate for foreign currency transactions related to various banking services. This includes situations such as:
- Purchasing foreign currency cash from us, or selling foreign currency cash to us.
- Buying a bank draft in a currency different from the currency you are using for payment.
- Sending international wire transfers in a currency different from your account’s currency.
- Receiving international wire payments or depositing foreign currency cheques into your account.
For these services, we will provide you with our current exchange rate for the transaction. You then have the choice to proceed with the transaction or not, based on the quoted rate.
When you deposit funds into your account that are in a different currency, such as with incoming international wire transfers, we will convert those funds into your account’s currency before depositing them. The conversion uses our applicable exchange rate that is in effect when the deposit is processed and credited to your account.
It’s worth noting that for some services, we do not control the exchange rate. This is the case when you use your debit or credit card outside of Canada for ATM withdrawals or purchases. These transactions will have different exchange rates and potentially different fees. We encourage you to review the agreements governing your card usage and related services for complete details.
How Our Exchange Rates Are Determined
For every foreign currency exchange where we set the rate, we use a retail exchange rate. The exception is for transactions between banks and major financial institutions in the interbank (wholesale) market, where an interbank exchange rate is applied.
Our retail exchange rates are updated frequently throughout the day. This is based on a number of dynamic factors, including:
- Interbank exchange rates: These are the wholesale rates for very large-volume currency exchanges between banks and major financial institutions. These rates are often referenced in financial news and media.
- The transaction amount: The volume of foreign currency being exchanged can influence the rate.
- Cash vs. non-cash transactions: Whether the transaction involves physical foreign currency cash impacts the rate.
- Our operational costs and risks: Our costs and risks associated with handling and managing foreign currency are factored into the exchange rate.
Cash vs. Non-Cash Exchange Rates: Understanding the Difference
Exchange rates for foreign currency transactions that do not involve physical cash (like wire transfers, payments, cheques, or drafts) are generally more favorable than exchange rates for buying or selling physical foreign currency banknotes. This difference reflects our costs and the inherent risks associated with the logistics of handling, shipping, and securely storing foreign currency cash.
Managing Exchange Rate Fluctuation Risks: Returns and Reversals
Exchange rate fluctuations can impact returned or reversed transactions. Consider this scenario: if you deposit funds (like a cheque or wire transfer) that were initially converted to your account’s currency, and that deposit is later reversed or returned, we will convert the funds back to your account’s currency at the exchange rate in effect at the time of the reversal. This converted amount will then be debited from your account. Due to exchange rate fluctuations, the debited amount may differ from the original deposited amount.
Here’s an example to illustrate this:
Monday: You deposit a US$100 cheque into your Canadian Dollar account at a branch.
Exchange rate: 0.75 (For every 1 USD, you get 0.75 CAD)
Conversion: US$100 x 0.75 = C$75 is deposited into your account.
Wednesday: The cheque is returned unpaid (e.g., due to insufficient funds).
Exchange rate: 0.80 (For every 1 USD, you get 0.80 CAD)
Conversion: US$100 x 0.80 = C$80 is withdrawn from your account.
Similarly, if funds you sent are returned or reversed, the amount you receive back may be different from the original amount withdrawn from your account for the transfer, again due to exchange rate changes.
For example:
Monday: You send EUR100 via wire transfer from your Canadian Dollar account at a branch.
Exchange rate: 0.75 (For every 1 EUR, you get 0.75 CAD)
Conversion: EUR100 x 0.75 = C$75 is withdrawn from your account, converted to EUR100, and sent.
Wednesday: The wire transfer is returned (e.g., recipient account closed).
Exchange rate: 0.80 (For every 1 EUR, you get 0.80 CAD)
Conversion: EUR100 x 0.80 = C$80 is deposited back into your account.
Understanding these potential fluctuations is key to managing your international transactions effectively. For any questions regarding foreign currency exchange or specific transaction details, please contact us.
