If you are actually charging interest to your relative, and reporting the income as taxable income, then you can subtract your foreign-exchange costs from the interest that you received. In other words, if you lent $1000, and you received $1100 less a $50 exchange fee, then you would report $50 of interest income. You can't deduct the exchange fee, because you can't subtract income that you never received. You simply report less income from the loan.
