If the currency exchange shop in Bulgaria exchanged my Euros to Lev at a rate of €1 to 1.96lev, which is currently the exact market price, how do they make their profit?
In: Economics
There isn’t an exact exchange rate when it comes to currency. There’s instead the bid/ask spread. Basically the price that people are offering to buy at, and the price people are offering to sell at.
If you set up your own stall and offer to exchange your Euros, you sell them at their ask price, which is higher but you have to wait for people wanting to exchange Lev for them to come to you.
If you instead go find someone already set up and ready to buy those Euros from you, then you sell them at their bid price, which is lower but more convenient for you.
This gap in the bid/ask is where their profit comes from. They buy currency for slightly less than what they sell the same currency to others.
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