Minds On
Foreign transaction fees
When we visit another country, we may not always bring the exact amount of money required to make purchases. Unexpected expenses may arise, prompting travelers to make a decision about payment. Do they use a debit card from home? Or should they use a credit card instead? Will the exchange rates be the same?
Brainstorm
Brainstorm
What tips would you provide your family or friends when making purchases in another country? What would you suggest they be aware of? What would you suggest they do in order to avoid unnecessary added charges to their purchases?
Action
Foreign fees
When using a debit or credit card to make purchases in another country, there can be hidden fees. People may not know the daily exchange rate so they run the risk of paying more than they anticipated. Additionally, they will be charged a transaction fee for using their card in another country. There are three main additional costs when using a debit or credit card abroad to withdraw money.
- charged by credit card companies or merchants in addition to the rate of currency conversion
- usually between 1-2% of the overall purchase price
- e.g. Dynamic Currency Conversion or DCC
- customer may be asked if they want to convert purchase price to their home currency when making an international purchase
- the DCC service allows them to know the converted price at check out
- need to be careful as these charges are in addition to the charges that their credit card issuer will apply
- additional charge that is predetermined by their debit or credit card provider
- charge ranges between 2.5% and 3%
- added when they carry out transactions or withdraw cash in a country that is not their home country
- e.g. if they spend $100, and the Foreign Transaction Fee is 3%, they are paying $3 more which may add up over several purchases
- a fee is charged when a credit card is used to withdraw cash from an Automated Teller Machine (ATM)
- there is a fee to withdraw from an ATM both internationally and in their country of residence
- the fee is usually between 1 and 4%
- if a debit card is used, a transaction fee is charged which varies from bank to bank
Calculating additional fees
Let’s put this into practice.
A shopper purchases something online from a clothing website in the United States. Their sweater will cost them $50 USD. Calculate how much they will be spending on this sweater in CAD, Canadian dollars, with a foreign currency conversion fee of 2%, and a foreign transaction fee of 3%. Don’t forget to factor in their actual conversion rate of 1 CAD = 0.78 USD.
If you would like, you can complete this activity using TVO Mathify. You can also use your notebook or the following fillable and printable document.
Press the ‘TVO Mathify' button to access this resource and the ‘Activity’ button for your note-taking document.
TVO Mathify (Opens in new window) Activity (Open PDF in a new window)Transaction fees and daily withdraw limits
If a traveler chooses to use their debit card while in another country, they will be charged a transaction fee of approximately $5. Additionally, they will incur a foreign transaction fee when they use an ATM machine not affiliated with their home bank. Another factor to be aware of is the daily withdrawal limit on a debit card. For example, if their debit card has a withdrawal limit of $150 and their bank charges them a transaction fee of $5, they are left with $145 CAD they can withdraw that day.
Case study
A traveler is in Japan and would like to visit an amusement park but they have run out of cash. The currency used in Japan is Japanese Yen which is represented by the symbol ¥ and the abbreviation JPY. The daily admission to the amusement park is ¥8,900. Their debit has a limit of $200 CAD daily. How much Japanese Yen can they withdraw in cash when using their debit card? Will they have enough ¥ remaining to purchase other items?
The conversion is 1 CAD = 81.48 JPY. Keep in mind that the ATM machine will charge them ¥408 and their bank will charge them a $5 CAD fee as well.
If you would like, you can complete this activity using TVO Mathify. You can also use your notebook or the following fillable and printable document.
Press the ‘TVO Mathify' button to access this resource and the ‘Activity’ button for your note-taking document.
TVO Mathify (Opens in new window) Activity (Open PDF in a new window)Consolidation
Case study
A person travelling to Italy to take a course in Italian this past summer used their credit card at ATMs and while shopping. These are four of their receipts:
| Receipt number | Method of payment | Amount on receipt (in euros) |
|---|---|---|
| Receipt 1 | Credit card withdrawal-Cash Advance | €160 (EUR) |
| Receipt 2 | Credit card purchase | €86 (EUR) |
| Receipt 3 | Credit card purchase | €140 (EUR) |
| Receipt 4 | Credit card purchase | €60 (EUR) |
With each credit card purchase, the individual will pay a foreign transaction fee of 3% on the total purchase and a foreign currency conversion fee of 2% on the total purchase. With each cash advance withdrawal, they will have to pay 4% on the withdrawal amount. If 1 CAD = €0.65 (EUR) and the Annual Percentage Rate (APR) on their credit card is 19.9%, what will the individual be paying on their credit card after their 30-day trip? Calculate this amount in Canadian dollars.
If you would like, you can complete the next word problem using TVO Mathify. You can also use your notebook or the following fillable and printable document.
Press the ‘TVO Mathify' button to access this resource and the ‘Activity’ button for your note-taking document.
TVO Mathify (Opens in new window) Activity (Open PDF in a new window)Reflection
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