TL;DR: What is the proper way of calculating the exact loss (due to the exchange rate(*)) on a currency exchange transaction?

(*) I'm not interested in other costs, like commission fee.

Longer example: AKA what I assume is the 'proper' way:

Let's say I'm a tourist in the EU and I want to buy 100 EUR for USD. I check the official exchange rate, which today (26.12.2018, according to Google) is 1 EUR = 1.139 USD. Let's assume this is the 'official' exchange rate, and work with this.

Now, if I find a place that sells me 1 EUR for 1.2 USD and I buy 100 EUR, then I will spend 1.2 * 100 = 120 USD. But, if I could have bought the 100 EUR for the official rate, I would have spent only 1.139 * 100 = 113.9 USD.

So, on the transaction, I have lost 120 - 113.9 = 6.1 USD which is 6.1 / 1.139 = 5.36 EUR.

Question: is the above calculation correct? If not, then what are the issues, and what would be the correct way to calculate the loss?


Your calculation is correct as far as math goes, but that's not a loss. If its anything you could consider it a fee, but even then since you're not paying it it's not really that either. The published price will be for a lot size of like $100,000. If you're not working with that kind of number, you're not getting the published price; it's not a loss, it's just a different price.

  • Could you expand on why it is not a loss? Maybe I was not using the correct term, but my reason to call it a loss is that now I have 6.1 USD (or 5.36 EUR) less than before the transaction.
    – Attilio
    Dec 26 '18 at 17:01
  • I understand your reasoning. But, you traded 100 EUR for 120 USD, that was the trade. A loss generally means I bought something for 5 and sold it for 4, resulting in a loss of 1. If you were to trade your 120 USD back to EUR and only had 90 EUR that would be a loss of 10 EUR. Comparing the spot rate to a real transactable exchange rate is only useful in determining whether or not you got a good deal.
    – quid
    Dec 26 '18 at 17:09
  • @Attilio Like quid I would also say that the ''loss'' on the exchange rate is more of a fee than a real loss. The first trade of 100 EUR for 120 USD would simply be a transaction where you agree to buy something for a certain price, therefore no loss on your part (even if yes in the end you would have lost some money by doing this transaction instead of an other one).
    – Gainz
    Dec 27 '18 at 15:38
  • Thanks quid and Gainz, that makes sense. So, if I understand correctly: if I buy 100 EUR for 120 USD, then that was just the "price" for the 100 EUR. But, if I resell those 100 EUR for say, 105 USD then I have a loss of 15 USD.
    – Attilio
    Dec 28 '18 at 10:53

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