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I am in India. In the past, I have done contracting jobs with a European Company. The European Company remitted money to vendors & contractors in India.

For me, my contracted rate was in Dollars. So the European Company transferred money in Dollars to my Indian Bank Account throw SWIFT. The Bank converted the money based on the exchange rate of the day & also levied a small forex conversion tax on it.

The company also paid some vendors in India. For e.g. if I required buy something from an Indian vendor, I would order it from the vendor - the vendor would send across an invoice in Indian Rupees to me & I would forward it to the European Company & they would SWIFT transfer the money into the vendors account. However, the transfer was different in case of the vendor payment. The European Company would transfer money in Rupees to him from their Bank - i.e. he would always receive the exact amount in Rupees in his account as per the invoice - i.e. it did not depend on the exchange rate. I can imagine this happening by the European bank transferring the money exactly as per day's rate (though practically even this is difficult because it took a day or two for the money to show up in my account). However, the bigger thing was in my account, the item showed as $ converted to rupees - i.e it would show as (assuming the company paid me 100$)

Something Something 100$ @ 65 Rs = 6500 Rs. Credit
Forex Conversion Tax xx.xx Debit

Whereas in the vendors account it would show up as

Something Something 10000 Rs. Credit

Also, the receiving bank doesn't levy the forex conversion tax.

So I want to how exactly does this work - how do you remit money from another country in a different currency in such a way that the receiving bank doesn't see the foreign currency at all?

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Typically, you can chose in the transfer if you want to transfer in target currency or in source currency.

If you chose source currency, the receiving bank (for you, in India) does the conversion, and charges the fees.
If you chose target currency, the sending bank does the conversion and charges the fees. The advantage is that they offer to generate a defined amount in the target currency, so you can pay a bill exactly.

Either way, one of the two banks is going to charge you. It absolutely depends on the banks which fee is higher.
From personal experience, between Europe and the US, either direction mostly the receiving bank is cheaper ('incoming fees' are set lower than 'outgoing'). I can't say for India; you need to check with your bank.

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