There are two factors involved in exchanging currency abroad, the
exchange rate and the commission fee. Don't rely solely on the
exchange rate, but factor in the commision as well. Commission fees
can vary significantly. So look for the best combination of exchange
rate and fee.

Since changing exchange rates can affect the value of your money,
you'll want to be cautious about the currency you carry. When the
dollar is strong, you'll want to carry dollars; when the dollar is
weak, you'll want to carry either the currency of the country you are
visiting, or a strong currency, such as Swiss francs.  When the dollar
is in flux, you'll want to carry both, and spend dollars when the
dollar is rising and foreign currency when the dollar is dropping.
When the dollar is dropping, try to pay for as many expenses as
possible in advance.

When the dollar is dropping, be careful with using credit cards. If
there is a delay in posting the transaction to your account, you'll
get a less favorable exchange rate. On the other hand, the exchange
rate used by the credit card companies is often better than that for
cash or traveler's checks. If you need extra cash, the exchange rate
used by ATMs is the preferential commercial/wholesale rate. [Although
true in most countries, it is not necessarily the case in Japan, where
the government sets the exchange rate.] Even with the interest charges
and/or transaction fee, getting a cash advance on your credit card or
bank card can sometimes be the cheapest (and most convenient) option,
because you don't pay a commission.  If your credit card is actually a
debit card (such as a Mastercard or Visa secured with a bank account
or a brokerage account, or an ATM card from your bank) you won't pay
any interest on cash advances, since the cash is withdrawn directly
from your account.  Thus using an ATM to get cash in the foreign
currency is probably one of the best and least expensive methods. On
the other hand, when the dollar is rising, you'll want to pay by
credit card when possible.

ATMs, banks, and traveler's check offices have the best rates. Avoid
exchanging money at airports, train stations, hotels, and money
changers if at all possible.

To avoid the interest charges for cash advances on SOME credit cards,
try overpaying your credit card bill before departing. You'll have to
read the fine print, however, to determine whether this works. Some
banks charge interest on cash advances, whether or not the credit
balance covers the charge. Others will charge you a cash advance fee
that is equivalent to a high finance charge. If you're lucky, your
card will treat a cash advance like a purchase that starts acruing
interest immediately. If so, maintaining a credit balance will
eliminate the finance charges.

There are, however, some caveats about using an ATM. Not all ATMs
overseas can be used 24 hours a day; some are restricted to regular
banking hours only. As usual, there are daily withdrawal limits. Your
bank card or credit card must be on the Plus or Cirrus network for you
to be able to use it abroad. Both systems have more than 100,000 ATMs
in 40-50 foreign countries. American Express Express Cash is also
quite common. There are many other smaller banking networks, which may
or may not have machines conveniently accessible at your destination.
There are some countries, however, which don't yet have any ATMs, or
at least not very many, on the Cirrus or Plus networks. For example,
the Netherlands doesn't have any Plus machines, but does have several
machines on the American Express Express Cash network. Likewise, there
are also countries that don't have any American Express Express Cash
machines. Check for availability of machines on your network before
you leave on your trip.  Before you leave, call your bank to make sure
your PIN (personal identification number) will work in ATM machines in
the foreign country.

In the US and Canada, call 1-800-4CIRRUS to get the address of the
nearest ATM on the Cirrus network. In the US, use 1-800-THE-PLUS for
locating PLUS ATM machines.

With respect to credit cards, bring a Mastercard, a Visa, and an
American Express card. Bring at least two cards, since replacing a
lost or stolen credit card overseas can be difficult. Don't keep all
the cards in the same location, so that you won't lose all of them at
the same time.  Don't bring your Discover Card -- few establishments
outside the US and Canada recognize it. Mastercard is generally usable
anywhere you see a Eurocard sign; Eurocard is the European equivalent
of Mastercard.

Before you leave, take at least $50 worth of foreign currency in small
denominations with you, to pay for incidental expenses at the start of
your trip (e.g., transportation from the airport to your hotel;
taxicabs don't accept credit cards overseas). Airport currency
exchange offices have long lines, and often charge a higher exchange
rate than banks. Later on you can get foreign currency for
restraurants and other establishments that don't accept credit cards.
But don't take too much cash with you, because flashing a big wad of
bills is the quickest way to lose it.

If you buy traveler's checks, be careful when exchanging them for
foreign currency. Exchange rates and processing fees can vary
considerably, depending on which bank, exchange office, or hotel you
use. There is no fee for exchanging American Express traveler's checks
at American Express offices. You can also get them at AAA for no fee
if you are an AAA member. Traveler's checks are safer than cash, but
you'll still want to be careful. Although they can be replaced if lost
or stolen, replacing them can take some time. The other drawback to
traveler's checks is, of course, the 1-2% commission you pay when you
buy them. Only in the US are traveler's checks considered the
equivalent of cash; in Europe, you'll probably have to exchange them
at a bank, since many establishments won't accept them in payment.
Only get traveler's checks if you're concerned about safety, or don't
have a credit card, or are traveling to a destination that doesn't
have any ATMs.

Traveler's checks are also available in foreign currency, including
British pounds, Canadian dollars, Dutch guilders, French francs,
German marks, Hong Kong dollars, Japanese yen, Spanish pesetas, and
Swiss francs. If the dollar is in flux or dropping, you'll want to buy
some traveler's checks in the foreign currency or in a strong
currency, such as Swiss francs. Many shops and restaurants will accept
traveler's checks that are denominated in the native currency, saving
you the bother of exchanging them.

Bring some dollars with you for the trip home (e.g., drinks and movies
on the plane, and cab fare home). If the dollar is very strong, you
may be able to get more for your money in open markets as dollars than
if you had exchanged them for the local currency. 

In general, don't make yourself dependent on only one form of
money. Bring some cash in both currencies with you, but also bring
credit cards, and maybe even some traveler's checks.

When returning to your home country, try to avoid bringing coins back
with you. Many banks will exchange bills in foreign currency but not
coins. Either spend the coins before you leave, or convert them to
bills.  Note that in some countries (e.g., Japan) you will have to pay
the departure tax before boarding your return flight. So make sure you
keep enough local currency to cover the tax.

Because you may have trouble doing exchange calculations in your head,
precompute the value of several common items in the foreign currency.
(Don't use items whose value in the foreign currency doesn't
correspond with their value in dollars.) Then use these items as
standards when shopping in the market. Chocolate bars and the cost of
lunch are good yardsticks. It won't be exact, but it'll give you a
quick and instinctive test for whether you're getting ripped off or
not. Better yet, bring a calculator with you.

Of course, it is a good idea to familiarize yourself with the foreign
currency, so that you don't have to rely on the vendor to count your
change. 

If the government required you to declare how much money you brought
into the country, keep receipts for all money exchanges and purchase.
You may be required to prove that you exchanged your money legally.

If you're inexperienced, don't dabble in black market currency
exchanges. The black market is usually illegal, so you can get into a
lot of trouble. The person you exchange with could be an undercover
policeman, or could turn you in. Or they could be setting you up to be
mugged afterwards (checking out how much money you have).  If you
don't know the going rate, you'll probably wind up being cheated.
Never exchange money with a person you meet on the street. The black
market will only exist in countries where hard currency (e.g., US
dollars and strong currencies) are more desirable than the local
currency. For example, countries with exchange controls, artificial
exchange rates, or high inflation rates, and developing countries are
likely candidates. Clean, crisp, high denomination bills are generally
preferred. The safest way to take advantage of the black market is to
use your currency to buy stuff at the peasant market (aka bazaar,
shuk, etc.). After bargaining in the usual fashion using local
currency, pull out an amount of your currency of lower total value.
High class establishments will generally not engage in the black
market. As a general rule, the benefits of black market exchanges
don't outweigh the risks if you're just traveling on vacation.