Interbank rates are the wholesale large transaction lowest bid-ask spread rates.
The bid-ask spread is simply the difference between the price at which
a dealer will buy a currency and the price at which the dealer will
sell a currency. In other words, the bid price is the price that the
dealer is willing to pay or “bid” for a currency, while the “ask”
price is the price that the dealer wants for a currency.
Consider an American traveler – let’s call her Ellen – who is visiting
Europe and is confronted by the following price for euros at an
airport exchange kiosk: EUR 1 = USD 1.30 / USD 1.40. The higher price,
i.e. USD 1.40 is the price that the dealer is asking per euro. Since
Ellen wants to buy EUR 5,000, she would have to pay the dealer $7,000.
What if the next traveler in line – Clark – has just finished his
European vacation and before boarding his flight back to the U.S.,
wants to sell the euros he has left over. By sheer coincidence, Clark
has EUR 5,000 to sell. He would sell the euros to the kiosk dealer at
the bid price of USD 1.30, and would receive $6,500 for his euros.
The difference of $500 (i.e. $7,000 – $6,500) arising from these two
transactions represents the kiosk dealer’s profit, and arises from the