Which exchange rate to use?

October 10, 2018 5:04 AM

I have a short-term contract with a domestic subsidiary of an European firm. We have negotiated my rates in USD, but I shall be invoicing and receiving local currency funds via a domestic transaction. So, the, perhaps silly, question is, which is the 'fairest' or 'proper' exchange rate to use in my invoice? Is the normally published inter-bank rate fine?
posted by daksya to Work & Money (5 answers total)

Is there an exchange rate that your jurisdiction's tax authorities require you to use when calculating your tax obligations on the income received? For example, here's the US IRS page on exchange rates. If the contract doesn't otherwise specify an exchange rate, then I would use the same one that you'd use to report the income for tax purposes, for simplicity if nothing else.
posted by melissasaurus at 5:35 AM on October 10, 2018 [1 favorite]

How do you plan to get your money converted into USD? Nobody pays the exact interbank rate ("spot"), there's always a percentage added by the transmitting and/or receiving bank.

Since you plan to invoice in the other currency, it looks like you will be paying it one way or another. So you should specify a published rate (my accountant uses OANDA.com) + the spread and fees your bank will be adding.

In the future, I would invoice in USD and make the customer pay the fees.
posted by JoeZydeco at 5:39 AM on October 10, 2018 [1 favorite]

Response by poster: The client and I agreed to denominate my rate in USD, because that's what they are used to dealing in. However, I will bill the domestic subsidiary and they will pay in the domestic currency. My invoice will be in the domestic currency. The money will never be or become USD.

So, when it's time to generate my invoice, I won't be putting in X USD/hr but Y UNITS/hr. No actual currency exchange will ever take place. My understanding is that there is no single canonical exchange rate so my question is which is the proper or fair exchange rate to use.
posted by daksya at 6:20 AM on October 10, 2018

My employer has everyone use oanda.com for calculating reimbursements. You can specify the date that you want to check the exchange rate.
posted by neushoorn at 6:45 AM on October 10, 2018

Best answer: Nobody experienced in this is going to agree to the intra-bank rate. Nobody gets that except banks, hence why it is also called the bank to bank rate.

You want the mid-market rate from Google or XE.net. All you need to agree with the company is what day you will bill -- ie, the first of every month, or every Monday, or daily -- so that you are agreed on when the exchange will be calculated.
posted by DarlingBri at 9:31 AM on October 10, 2018 [4 favorites]