Except in Solu Khumbu and on the Annapurna treks, changing foreign money is likely to be very difficult if not impossible. Bring enough money for the whole trek and don't count on being able to change Rs 1000 notes except in Namche Bazaar and Jomsom.
The Nepali rupee (Rs) is divided into 100 paisa (p). There are coins for denominations of one, two, five and 10 rupees, and bank notes in denominations of one, two, five, 10, 20, 25, 50, 100, 500 and 1000 rupees. This is a great contrast to a time not long ago, when outside the Kathmandu Valley, it was rare to see any paper money. Mountaineering books from the 1950s often comment on the porters whose sole duty was to carry the expedition's money - in cold, hard cash.
Away from major centres, changing a Rs 1000 note can be very difficult, so it is always a good idea to keep a stash of small-denomination notes. Even in Kathmandu, many small businesses - especially rickshaw and taxi drivers - simply don't have sufficient spare money to allow them the luxury of carrying a wad of change.
Standard Chartered Bank has ATMs in Kathmandu and Pokhara; you can get cash advances on both Visa and MasterCard 24 hours a day, though travellers have reported that these machines don't take cards that run on the Cirrus system. Other banks, such as the Himalaya Bank, also have ATMs but some only accept local cards. Using an ATM attached to a bank during business hours will minimise the hassle in the rare event that the machine eats your card.
Major international currencies, including the US dollar, euro and pounds sterling, are readily accepted. In Nepal the Indian rupee is also like a hard currency - the Nepali rupee is pegged to the Indian rupee at the rate of INRs 100 = Rs 160. Be aware that INRs 500 and INRs 1000 notes are not accepted anywhere in Nepal, apparently due to forgeries.
Official exchange rates are set by the government's Nepal Rastra Bank and listed in the daily newspapers. Rates at the private banks vary, but are generally not far from the official rate.
There are exchange counters at the international terminal at Kathmandu's Tribhuvan Airport and banks and/or moneychangers at the various border crossings. Pokhara and the major border towns also have official moneychanging facilities, but changing travellers cheques can be difficult elsewhere in the country, even in some quite large towns. If you are trekking, take enough small-denomination cash rupees to last the whole trek.
The best private banks are Himalaya Bank Nepal Bank Ltd and Standard Chartered Bank. Some hotels and resorts are licensed to change money but their rates are lower.
When you change money officially, you are required to show your passport, and you are issued with a foreign exchange encashment receipt showing your identity and the amount of hard currency you have changed. Hang onto the receipts as you need them to change excess rupees back into hard currency at banks. You can change rupees back into hard currency at most moneychangers without a receipt.
If you leave Nepal via Kathmandu's Tribhuvan Airport, the downstairs exchange counter will re-exchange the amount shown on 'unused' exchange certificates. Official re-exchange is not possible at any bank branches at the border crossings.
Many upmarket hotels and businesses are obliged by the government to demand payment in hard currency; they will also accept rupees, but only if you can show a foreign exchange encashment receipt that covers the amount you owe them. In practice this regulation seems to be widely disregarded. Airlines are also required to charge tourists in hard currency, either in cash US dollars, travellers cheques or credit cards, and this rule is generally followed.
Major credit cards are widely accepted at midrange and better hotels, restaurants and fancy shops in the Kathmandu Valley and Pokhara only.
Branches of Standard Chartered Bank and some other banks such as Nabil Bank and Himalaya Bank give cash advances against Visa and MasterCard in Nepali rupees only (no commission), and will also sell you foreign currency travellers cheques against the cards with a 2% commission.
The American Express (Amex) agent is Yeti Travels in Kathmandu. It advances travellers cheques to cardholders for a standard 1% commission.