--- title: "Foreign currency exchange" description: "Foreign currency exchange is converting one currency into another at an exchange rate. How rates work for business travel, taxes and paying abroad." canonical: https://engine.com/glossary/foreign-currency-exchange updated: 2026-11-02 author: "Engine Editorial" --- # Foreign currency exchange Foreign currency exchange is converting money from one currency into another at an exchange rate, the rate at which one currency may be converted into another. Also called: currency conversion Not to be confused with: A foreign transaction fee Updated November 2, 2026 by Engine Editorial ## What is foreign currency exchange? Foreign currency exchange is turning one currency into another, at a rate that sets the price. This cheat sheet covers how to think about it and what to settle before your team travels. The detail is further down. ### How to think about it - **The rate is the price.** An exchange rate is the rate at which one currency may be converted into another, according to the IRS. - **The IRS wants dollars.** Amounts on a U.S. tax return must be in U.S. dollars, so expenses paid in a foreign currency have to be translated. - **Use the rate on the day.** The IRS says to use the exchange rate prevailing, the spot rate, when you receive, pay or accrue the item. - **Paying in dollars abroad has a cost.** When a merchant offers to charge you in your home currency, Visa says the option includes an exchange rate and additional fees. ### Before your team travels - **Set the reimbursement rate.** Decide in advance whether you reimburse at the transaction-date rate, the credit card rate, a weighted average or the bank's reserve rate. - **Per diem is in dollars.** The State Department publishes foreign per diem rates in U.S. dollars, but travelers still pay in local currency. - **Read the conversion screen.** Visa requires merchants and ATMs offering home-currency conversion to show both amounts, the exchange rate and any fees or markup. - **Check the card's fees.** Card issuers can charge a fee on purchases made in a foreign currency and converted to U.S. dollars. ## Paying in local currency vs. your home currency | | Pay in local currency | Pay in your home currency (dynamic currency conversion) | | --- | --- | --- | | Who converts | A third party such as the card network | The merchant or ATM offering the conversion | | Possible card fee | The issuer can charge a foreign transaction fee | The issuer can still charge one if the merchant is foreign | ## Book company hotels in one place On Engine, travelers and authorized bookers can search hotels, review room details and property terms, and book online. Free to use. [Get started](https://engine.com/sign-up) ## Questions ### What is an exchange rate? The rate at which one currency may be converted into another. The IRS notes it is also called the rate of exchange, foreign exchange rate or currency exchange rate. ### What is dynamic currency conversion? An offer from a merchant or ATM abroad to charge you in your home currency instead of the local one. Visa says the option includes an exchange rate and additional fees. ### Do I have to accept dynamic currency conversion? No. Visa says merchants and ATMs should let you accept or decline and must not choose for you, and declining does not affect your ability to make purchases or withdraw cash. ### Which exchange rate do I use for business expenses on a U.S. tax return? If your functional currency is the U.S. dollar, the IRS says to use the exchange rate prevailing when you receive, pay or accrue the item. The IRS says you can generally get exchange rates from banks and U.S. embassies. ## Go deeper - [International per diem rates](https://engine.com/blog/international-per-diem-rates) - [International travel checklist](https://engine.com/blog/international-travel-checklist) - [Foreign transaction fee](https://engine.com/glossary/foreign-transaction-fee) - [Per diem](https://engine.com/glossary/per-diem) ## Sources 1. Internal Revenue Service, "Foreign currency and currency exchange rates," https://www.irs.gov/individuals/international-taxpayers/foreign-currency-and-currency-exchange-rates, accessed November 2, 2026. 2. Internal Revenue Service, "Yearly average currency exchange rates," https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates, accessed November 2, 2026. 3. Visa, "What you should know about Dynamic Currency Conversion," https://www.visa.com/en-us/personal/travel/dynamic-currency-conversion, accessed November 2, 2026. 4. Consumer Financial Protection Bureau, "ยง 1026.4 Finance charge.," https://www.consumerfinance.gov/rules-policy/regulations/1026/4/, accessed November 2, 2026. 5. Engine, "International Per Diem: 2026 Rates and What You Need to Know," https://engine.com/blog/international-per-diem-rates, accessed November 2, 2026. 6. Engine, "Business Hotel Booking With Engine," https://engine.com/features/hotel-booking, accessed November 2, 2026.