# What are the currency rules when lending money to a friend?

Let's assume Alice lends `5000 EUR` to Bob for `three months` (because that's what Bob asked for). But Alice's bank account is in `USD`.

So, on 1st of January 2018, Alice looks at the exchange rate of EUR/USD and sees it's `1.20`.

On 1st of January Alice converts `6000 USD` to `5000 EUR` and gives them to Bob.

After three months, on 1st of April, Alice will get the money back from Bob.

Assuming they did not discuss about the currency issues, how much money will Alice get back from Bob, as the exchange rate was on 31 March `1.23`?

Will Bob have to send to Alice `6000 USD` or `6150 USD` (5000 * 1.23)?

Another case is if Bob's account is in yet another different currency (e.g. GBP). How would things work in that case?

1. Bob asks Alice for `5000 EUR`, because that's a common currency in that specific location (e.g. Europe), that both Alice and Bob understand.

2. 1st of January

• `EUR/USD`: `1.20`
• `EUR/GBP`: `0.88`
• `USD/GBP`: `0.74`

Alice takes from her bank `6000 USD` and Bob receives `4400 GBP` (6000 * 0.74, or 5000 * 0.88).

3. 1st of April

• `EUR/USD`: `1.23`
• `EUR/GBP`: `0.87`
• `USD/GBP`: `0.71`

Bob needs to send the money back to Alice.

How much will Bob send and how much will Alice receive?

Again, this assumes they didn't really talk about currencies on 1st of January. Bob asked for `5000 EUR`, Alice asked him if `6000 USD` is fine, he receiving `4400 GBP`, they agreed and the money was sent.

Also, in this context we forget about bank fees and related stuff. But if we would take care of it, how would that modify the problem?

• Is this a problem you are currently facing, or a homework problem? – JoeTaxpayer Apr 10 '18 at 18:22
• If you actually loaned money to a friend, it will likely never be repaid. You will be lucky to get anything back. Take whatever you can get. – Pete B. Apr 10 '18 at 19:13
• If they can´t figure that out for themselves, Bob and Alice seem rather stupid to me and should refrain from handling such large amounts of money! – Daniel Apr 11 '18 at 11:20
• Also, at least in Germany you are required to tax your income from interest - even if you failed to collect interest. The Finanzamt will then just estimate what kind of interest would have been in order. – Daniel Apr 11 '18 at 11:27

Your question need not be so convoluted. I actually don't care about the details of the exchange rate. There is one question that is unanswered -

"What was the agreement?"

Actually, the answer appears to be,"None".

So there are 2 choices -

• Alice is made whole. She gets back the value of currency she started with. If she started with \$XXX, that's exactly what she gets back. Bob needs to buy that amount of currency for her.

• Bob pays out exactly what he got. Whatever currency he got, he pays that much out and Alice gets whatever the exchange rate gives her.

You can add interest and/or exchange rate costs, and wind up with 8, 16, 32 permutations, but these 2 are really the start.

Your question still appears contrived to me, especially with how you describe a potential third currency. If I were Alice, I seem to be at risk here, let Bob borrow locally where the lender can knock on his door to demand the money back.

Alice and Bob need to agree. Either the loan is X Euros or Y dollars, and that needs to be agreed on to avoid trouble. If the currency changes other three months, then one of them might benefit or lose out, so agreement is essential to avoid arguments.

If Alice is doing Bob a favour by giving a loan, then I would expect that they agree in such a way that Alice will get her money back and not lose out. Since her bank account is in US\$ (for example because she lives in the USA), the agreement would likely be that she gives Bob 6000 USD (so he receives the 5000 Euros that he needs), and after three months Bob takes whatever amount of Euros is needed, converts it to 6000 USD and pays Alice back.

After three months, Bob may be lucky or unlucky and have to convert fewer or more than 5000 Euros.

Of course they also might have an agreement that Bob pays her 2500 Euro plus 3000 dollars.

PS. If they failed to discuss these things before handing over the loan, then things depend on how the exchange rate changes, and how much each one values their friendship. At the very least there should be a piece of paper specifying the amount of the loan in unambiguous terms (US\$ 6000 = fine, Euro 5000 = fine, "US\$ 6000 = Euro 5000" = asking for trouble.

• As mentioned, they didn't talk about currencies. What should Alice/Bob assume? – Ionică Bizău Apr 10 '18 at 18:51
• I would assume in the case of no agreement it would be paid in the lender's currency. However, in your case I would assume euros as Bob asked for euros and Alice agreed. That is a de facto agreement in my opinion. – Pete B. Apr 10 '18 at 19:08
• I would assume in the case of no agreement Bob has the money, so he decides what happens. Good luck before court! – Daniel Apr 11 '18 at 11:23
• to @PeteB. 's point. I don't really agree for the following reason. (1) Bob and Alice know less than nothing about what they are doing. (2) "Bob asked for euros and Alice agreed" they both have not the slightest idea what they are talking about: what will happen here is that 7,113.25 USD will leave the bank of Alice. (3) if the stated (bizarre) scheme of "in Euros" was followed, Alice will look at her account one day and see an entry where she got some amount - far less than "7,113.25". ... (cont!) – Fattie Apr 11 '18 at 13:25
• ... someone will say "didn't we say Euros?" and that will just add vastly more confusion. (what about the (huge) fees anyway?) Alice will point to the two totally non-matching lines on her bank account and wonder what went wrong. (4) note that between two very sophisticated parties, you would never strike such a deal, it would be bizarre to "send and receive in Euros" (given, a sophisticate, w/ a USA bank account). (Again, don't even mention the fees.) (5) the only realistic way to treat the transaction is "as if Alice bought a jet-ski for Bob". "Replace" the line in her bank act. – Fattie Apr 11 '18 at 13:29

There is no correct answer, because there is no ‘rule’ about what should happen.

It is completely between the two to agree on something. If they can’t agree and go to court, it depends on the country where they do that, and what its laws says.

In other words, Alice will get whatever Bob sends her, and if they are still friends, they will discuss it and agree on a number, and if not, he might pick the borrowed amount in Euro, or the current value in \$, depending on how much he values her friendship or what he thinks is right.

Typically you pay debt in the form it is received. If you receive euros you return euros regardless of value fluctuations unless there is some other stipulation in the note

• Sorry, I'm still confused about this: how would you apply this to the example I've given? How much money will receive Alice and why? – Ionică Bizău Apr 10 '18 at 18:21
• Bob is going to return euros to Alice because that's what Bob received, unless there is some other agreement in place. Alice will receive 5,000 euros plus interest. Whatever happens when she swaps back to USD is on her, unless there was some other agreement in place. – quid Apr 10 '18 at 18:23
• As I mentioned, Alice cannot receive EUR because her bank account is in USD. So, should she receive `6150 USD`? – Ionică Bizău Apr 10 '18 at 18:25
• Alice converted her dollars to Euros at the start; why can't she convert back at the end? – DJohnM Apr 10 '18 at 20:28
• hi @IonicăBizău - you're wrong on many levels. For Alice to have sent "5000 eur" will have cost her some specific amount of USD, including all fees. She will have paid >>> in dollars <<<. Let's say, \$7002.00. In fact, Bob must ensure that Alice gets \$7002.00 USD back in her bank account. In fact Bob must >send< USD .. 7002.. Simple. – Fattie Apr 11 '18 at 0:18

Let's assume Alice lends 5000 EUR to Bob for three months (because that's what Bob asked for). But Alice's bank account is in USD.

Let's say it cost Alice USD \$6855.25 - in total - to send the wire to Bob.

Bob must repay USD \$6855.25 in to Alice' bank account.

Note that it will cost, say, a few hundred Euro for Bob to achieve that (Bob will have to pay various fees); in the example to get USD \$6855.25 in to Alice' bank account, it might cost Bob say EUR 5,600.

That's what Bob has to do.

Note - I used the specific example of "5,600" EUR because it inevitably costs about 12% to do a pointless roundtrip like this, at civilian banking levels.

What I explain is >>> exactly how it works <<< in all cases, including your more complex examples.

Look through your very complex example. At one point you say:

Alice takes from her bank 6000 USD (plus, about 80 USD fee - let's say 72.50)

So, Alice spent 6,072.50 from her bank account, on something Bob needed.

You tell me what she should get back?

It does not make any difference at all that the "thing" she was buying for Bob is "currency".

Imagine she was buying Bob a jet-ski he needed urgently for some reason.

# "Alice buys Bob a jet-ski in Thailand for an emergency. It takes 6,072.50 from her bank account."

You tell me how much she should get back.

It's that easy!

• You wrote “end of story” 4 times, but the answer only ended once. Confusing. End of comment. Or is it? – JoeTaxpayer Apr 11 '18 at 0:41
• It inevitably costs about 12 %’ - that’s complete nonsense. You should change your bank. – Aganju Apr 11 '18 at 2:15
• hi @Aganju. at around 5000, by the time you do the two way, with the fees and wire fees on each end, and you're talking a US (gag) bank, it will be 600 bucks. – Fattie Apr 11 '18 at 3:29
• I was not a DV. I try not to kid in a comment and also DV. A +1 for editing with respect to my comment. – JoeTaxpayer Apr 11 '18 at 12:09
• what is a "DV" guys? :O – Fattie Apr 11 '18 at 13:20