By default, Paypal really wants to do the foreign exchange for you because they make a few percent off your purchase like most other banks and credit cards. Below I explain the steps required to avoid these fees. In summary, it involves you signing up for a credit card with little to no forex fees, and following some steps to make sure that when you add a credit card to your Paypal account, you are being charged in the seller's currency, not your local currency converted by Paypal at a fee.
You should use a credit card with little to no forex fees such as the CHASE Amazon.ca VISA card which charges no forex fees at all and gives you 1% cash back rewards. This is like saving 3.5% on foreign purchases because most cards charge you at least 2.5% foreign currency exchange fees. For example if you signed up for the Amazon.ca CHASE card and added it to your Paypal account through paypal.com, by default Paypal would charge you in Canadian dollars (CAD) all the time even if the eBay seller is selling in USD and charge you a few percent forex fee for the conversion. You want to be charged in the seller's currency.
Once you have your credit card with low forex fees, to avoid the foreign exchange fees you must add the credit card to your Paypal indirectly using eBay, NOT Paypal! This is because Paypal does not give you the option on their website to avoid their currency conversion, but eBay can override their trick. Here are the steps to add a credit card on eBay that gets charged in the seller's currency:
1. First click on the Buy Now button on the item you want to buy on eBay. Confirm that you will pay.
2. Next window, click Continue like in the image below:
3. Next window you login to your Paypal from eBay as shown below:
4. Next window, click "Change" your payment method.
5. Next window, be sure to select "Card" radio button. But more importantly now click "Link another card" as shown below.
6. Now enter your card information and billing address as shown:
7. To get the currency into that of the seller, in the next window click "Other Conversion Options" as shown:
8. On the next window choose the radio button "Bill me in the currency listed on the seller's invoice" as shown below. Then click Submit and go through the typical checkout procedure you normally would.
So now you have this credit card added to your Paypal account that should automatically pay using the seller's currency, you can see the card if you login to your Paypal account.