Traveler's Check

A traveler's check refers to a kind of check used instead of hard currency by travelers. They use it to pay for purchases and obtain local currency. It is issued by institutions functioning in the banking and financial services industry.

It was a popular medium of exchange in the older times, enabling the tourists to handle money matters instead of carrying foreign currency while traveling overseas. It is an example of a negotiable instrument recognized as safe because the risk associated with its usage is low compared to other forms of payment.

• A traveler's check definition portrays it as a form of a check used by travelers in place of cash while traveling abroad. Tourists can use it to pay for things and obtain local money while they are overseas.
• Users can manage their transactions easily using it when they are on vacation or visiting foreign countries.
• This negotiable instrument is issued by institutions functioning in the banking and financial services industry.
• It is easy to use, has no expiry date, is not easy to forge, and will get a replacement if lost. But, at the same time, it also has disadvantages like adding purchase fees, etc.

Traveler's checks are pre-filled checks with a specific amount of money. They work similarly to cash. It is like prepaid money is stored in these checks that can be used to purchase goods or services in the local currency. In addition, they protect against loss or theft because the check holder shows identification and signature proof to cash the check. As a result, traveler's checks are regarded as a secure form of taking money abroad.

There are various parties involved while issuing a traveler's check.

• Obligor or Issuer: The company that issues the check, such as Bank of America, Citibank, or American Express.
• Agent: The bank or other institution that sells them is known as an agent.
• Purchaser: The individual or company purchasing them is termed the purchaser.
• Payee: The organization that receives the check in payment for services or goods, such as a retail store, hotel, restaurant, or bank. In exchange for a traveler's check, a bank pays cash.

Certain financial institutions issue traveler's checks. The signature is completed immediately after acquiring the checks. Then, when the check is ready to be cashed or exchanged, the payee's name and date are filled in, and the check is signed again. The second signature is done when it is used or cashing it.

Usually, in front of the authorized person responsible for cashing the check like the cashier at the bank and in other cases person or business to whom the user or traveler is making payment. Therefore, the two signatures should be identical. Hence, it is a dual signature instrument signed and used by one individual.

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Let us look at traveler's check examples to understand the concept better:

Example #1

Thomas Cook's traveler's check evolution started from the "Cook's Circular Note," a forerunner of the traveler's check. It was originally made available in denominations of £5 and £10 in 1874 by Thomas Cook's company. The circular note later became known as traveler's check, a trademark of American Express. To become the leading provider of traveler's checks outside of the United States, Thomas Cook purchased a Barclays Bank PLC business that issued checks in 1994.

Following a thorough evaluation of its international operations in the same year, Thomas Cook sells its travel management company to American Express. Thomas Cook On-Line started in 1997. It is the first retail travel agency in the UK to let consumers buy foreign currency traveler's checks, etc.

Example #2

American Express traveler's checks are popular in many nations. Purchases can be made in advance in the chosen currency and are commonly accepted by banks, exchange services, and even businesses that cater to tourists.

There are several advantages and disadvantages of a traveler's check:

Advantages

Traveler's checks are a safe means to handle transactions abroad and provide a wide range of benefits. Traveler's checks can be useful for foreign travelers in the following ways:

• First, it is easy to use.
• It comes with no expiry date.
• Another advantage is that it is a secure medium of exchange.
• No risk of losing the value or asset since it can be reported if lost and will get a replacement.
• They are not easy to forge.
• This type is less attractive for illegal activities than credit or debit cards.
• The event of stealers using a stolen check is not easy due to the stringent signing requirements.

Disadvantages

There are several disadvantages of the checks that have reduced their usage in recent times:

• It has expenses like purchase fees.
• An older mode that is not prevalent nowadays.
• Not widely available in the present world.
• May get a less competitive exchange rate.
• Nowadays not directly accepted everywhere and may face difficulty converting.

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This article is a guide to What is Traveler's Check and its meaning. Here, we explain its advantages, disadvantages, and examples. You can also go through our recommended articles on corporate finance –

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