The Forex Rate Puzzle Demystified (Updated)

This post was originally published on July 21, 2014. This is an updated version.

The various terms for rates that one may come across are Inter-bank rate or IBR, bank rate, card rate, market rate, online rates, XE rate, paper rate, trade (export/import) rate, trading rates, Forex card rate, currency rate, settlement rate, buying rate, selling rate, base rate, cross rates, miscellaneous rate, major currency rates, RBI rate, etc. And then there are also some hidden rates which you might not be aware of, like Credit/Debit card rates. So which one is the best Forex rate for you?

Each one of these is different, which often can lead to confusion for the holiday traveler while purchasing their foreign exchange.

This confusion is deliberately created by some Forex dealers, as it allows them to slip in a higher margin for themselves. So how about we simplify & clarify this for you!

The Most Important Forex Rate for Travellers

There is only one Forex rate that a traveler needs to determine for foreign currency exchange in India, and that is the Inter-bank rate (IBR). All other rates are derived purely by adding a profit margin on this ‘IBR’, as the case may be, for various types of Forex dealings.

For example: If on 7th July 2016 at 3:25pm, the USD to INR rate is 67.12

This IBR is determined collectively by banks, and is the basic rate at which they buy & sell Forex with each other. It is not for the public, and changes minutely every moment – but generally not by much.

The profit margin, or ‘margin’, is very, very small, as transaction sizes are usually in millions of dollars, or equivalent in different currencies – probably a few cents or paise difference only between the buying and selling rate. Since the ‘spread’ is so small (the difference between buying & selling rates), very often the IBR is shown as a single rate.

From a traveller’s perspective, the Buying rate is the rate at which the Forex dealer buys from you, and the Selling rate is the rate at which the Forex dealer sells to you. This is very important to keep in mind – since very often dealers lure you in by quoting Buying rates (which are obviously lower), and then make you transact at the Selling rate!

Coming back to the IBR rate, banks do not share this with the general public, so one has to resort to online rate-aggregators for an indicative IBR, at any given point of time.

Good sources to obtain an ‘Indicative’ IBR are ‘’, ‘’, – these come closest to mirror the Indian IBR. On, you will see this rate reflected on the home page after a negligible margin is added. This rate feed is updated hourly.

Such sites (,, collect data on global trading volumes of Indian Rupees (INR, not to be confused with IBR!), and arrive at a rate. This is also what banks do, hence the correlation – but in addition, banks have a slight bias in trading volumes of INR in the Indian market, hence a small variance (again, in paise only). However, any variances will be quickly adjusted through arbitrage. – but, that’s another story…for another blog post probably!

Back again to the IBR – once determined, the traveler must understand that this rate is set for electronic money, and that any physical currency that they buy carries other costs involved in reaching it to the consumer. These costs include transportation, storage, a profit margin for the dealer, and allowances for rate fluctuations – since the selling rate for the traveler is set only once a day for their convenience.

Currently for currency exchange online, the dealer has to also take into account online payment options like Payment Gateway charges of up to 2%. All these costs can reasonably add up to anywhere between 3-4% on the IBR and these are sometimes the best Forex rates you can get on currency.

So to conclude, don’t be confused with all the other rates that you hear, you just need to focus on the IBR. So the next time you negotiate for travel Forex, arm yourselves with the IBR, and then ask for the Selling rate and reasonably be prepared to pay at around 3-4%, depending on the season, and availability of Forex currency notes in the market.

Beware though, anything less offered, should raise alarm bells, as even one counterfeit currency note slipped into your bundle, so as to bring down the overall rate, can lead to drastic consequences.

A good alternative for those who want a better rate and be safe from such counterfeiting would be to purchase Prepaid Forex cards, which are available in most popular destination currencies at the best Forex rates. Since the currency loaded onto it is not physical, these can be available for about IBR+1% as well. And if you are lucky, these Forex cards can sometimes come for a little less too! Currency notes, should you need them, can be withdrawn from any ATM abroad at a very nominal cost.

Having said this, absolutely do not swipe your Credit Card or Debit Card abroad. The Forex rates and transaction fees applied can be anywhere from 9-11%, and there is scope for fraud to be committed on the card. Some other do’s and don’ts regarding Forex Cards can be found here.

So stay informed, stay safe, and have a great trip!

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This article has 2 comments

  1. Vinod Kumar Singla Reply

    Wonderful article.

    Missed to post the link at the end of this though. (Some other do’s and don’ts regarding Forex Cards can be found here.)

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