This article is from the Bicycles FAQ, by Mike Iglesias with numerous contributions by others.
First off, it should be noted that Europeans are embracing credit cards. One
big advantage to using credit cards to pay for everything is that you get a muc
better exchange rate than by changing your US cash (or Traveler's Checks) into
local currency. In 1996, using credit cards gave about a 7% savings over cash.
ATM cards are also becoming popular. They offer similar savings as credit card
as long as you are not charged a high fee by your bank for using it. I have
heard that sometimes the transaction fee can be as high as $5. Interestingly,
most banks charge about $5 for exchanging money!
If you are in the Alps, you should keep a good supply of the local currency as
banks are not always easy to find(except resort towns). Hotels will change
money, use this as a last resort as the exchange rate is not always good.
I have found that most banks have the same exchange rate, so shopping around is
seems to be a waste of time. Remember, you can change your current currency as
well as your US stuff when you change countries. However, if you are in France
and want to change US currency into Italian lire, you will most likely be
charged two transaction fees, one for changing from US to French francs and one
for changing the French francs to Italian lire.
As a general rule, you cannot change small denomination coins. If you are
anticipating leaving a country be sure to use up all your small change or be
prepared to just give it away at the border.