What is cross rate exchange? A cross rate exchange is the exchange rate between two unofficial currencies from the country where you’re obtaining an exchange rate quote from. Foreign exchange traders use this term when neither currency is the US Dollar. For example: The exchange rate between the Euro and the Japanese Yen is considered a cross exchange rate (when the local currency is neither Euro not Japanese Yen).
Why is this type of exchange discouraged when travelling ?
Say you are a resident of the UK and want to exchange the excess Euros from your holiday to Spain into US Dollars for your next holiday. So if you decide to do transaction in the UK, then the vendor will first exchange Euros into Great British Pounds (GBP). Then they will change the GBP to US Dollars.
This type of transaction can result the customer a rather high cost. When you exchange EUR to USD, your EUR will be used to first purchase the official currency of the UK, the GBP, with a markup and then the USD will be sold to you with another markup; so technically you will be charged twice and potentially two commissions.
What is the alternative to the cross rate exchange in the above situation?
If you need USD, to travel to the United States, it is better to wait until you arrive in the USA to exchange your funds. The EUR is a major currency in the United States and the exchange rate will likely be competitive , thereby giving you a better exchange rate (assuming you will not do this exchange in a high commission location such as the airport).
So, if you are in the UK and have excess EUR that you want to get rid of, make sure you exchange it into GBP only, as this is the official currency of the UK. The EUR is a major currency in the UK and competitive rates are available at many currency exchange businesses. There will always be commissions and fees for exchanging currencies outside of the major banks, however the rate of exchange is usually better at money service businesses that will make up for the added fees.