Exchange rates: when does PayPal convert?

[Paul-Jan]

While doing a little bit of bookkeeping, I am finding the PayPal documentation a bit unclear here, so if anyone could please enlighten me that would be much appreciated.

The situation: we are a Dutch company, so our native currency would be EUR. Within PayPal, we have two currency balances: EUR and USD. The currency we use for selling our products is usually USD.

The question: when does PayPal convert the currency?

Option 1) Immediately on sale. This implies our 'currency balance in USD' actually has a fixed underlying amount in euros, and the total balance amount (in USD) shown is just converted back to USD on the fly. This also implies that adding up your individual sales to check if this total is correct becomes virtually impossible. :confused:

Option 2) On Withdrawal. This means our currency balance in USD is simply the total of all USD sales. It also implies we could make a nice little extra profit by withdrawing money from the account when the EUR is weak. :)

PayPal documentation suggests they are applying (1).

[zoombapup]

Couldnt you test this by withdrawing 100 euros and factoring the change on your USD balance?

[Paul-Jan]

Hey, good one, thanks! :) I'll do so tonight and report my findings.

[Polycount Productions]

I believe it's on Withdrawal, and they report the converted sum when you do it.

If you sell something for $100, it will be $100 until you withdraw it. I believe the moment when you withdraw, it will become about 75 euros (or whatever the current conversion rate is).

I must add that I'm pretty sure this is the way it is, although I recommend testing/reading help files - or simply by asking from them.

[MerscomMan]

[QUOTE=Paul-Jan;127100]
Option 2) On Withdrawal. This means our currency balance in USD is simply the total of all USD sales. It also implies we could make a nice little extra profit by withdrawing money from the account when the EUR is weak. :)


Keep in mind that unless you are George Soros you are as likely to need the money when the EUR is strong as when it is weak, playing the currency markets is not for the faint of heart.

[Mark Sheeky]

The question: when does PayPal convert the currency?

Option 1) Immediately on sale. This implies our 'currency balance in USD' actually has a fixed underlying amount in euros, and the total balance amount (in USD) shown is just converted back to USD on the fly. This also implies that adding up your individual sales to check if this total is correct becomes virtually impossible. :confused:

Option 2) On Withdrawal. This means our currency balance in USD is simply the total of all USD sales. It also implies we could make a nice little extra profit by withdrawing money from the account when the EUR is weak. :)

PayPal documentation suggests they are applying (1).

On withdrawl or whenever you decide to manage currencies, but if you have only an EUR balance the conversion is performed when any money enters the account (there is an option in the preferences for this, something like "automatically convert to ..."). You can't make a "little extra profit" because PayPal charge you for any conversion by having it's own exchange rate. At best you can try to control how big your loss is!

Mark

[Shaz]

My Paypal account has two currency balances - AUD and USD. For me, the conversion happens when the currency changes - if I receive US$ payments into my USD account, there's no conversion. If I transfer money from my USD account into my AUD account or withdraw straight into my AUD bank account the conversion happens there and then and I'm told what the exchange is. If I receive US$ into my AUD account, the exchange happens then - and I believe if I look into details of the transaction I'm told the original amount in USD and the converted AUD amount.

So I COULD just receive everything into my USD account and watch the exchange rate and pick a day when it's more favourable to transfer funds into my AUD account or into my bank. - so from my experience it's actually #2 that's applied.

[Paul-Jan]

Thanks, guys!

I went with withdrawing 1000 dollars (had to specify the amount in dollars, and 100 dollars was below the threshold for an extra 1 euro penalty on withdrawal, so I simply went with the next easy number :p)... and can confirm that PayPal is indeed adding a neat 2.5% spread to the current exchange rate (like they state in their documentation).

Also, I can only agree with what you guys posted above: the currency is not converted on sale, but on withdrawal.

Mark: I found the option you refered to. It allows you to immediately convert any currency you don't hold a balance in to euro's when it enters the account. And you are very right about the "trying to control your losses" part. :D

MerscomMan: On the other hand, wouldn't it be a bit foolish to loose extra money by completely ignoring the currency market?