Q & A on currency exchange

Published on in Foreign Exchange News by

How long does it take to transfer my funds abroad?
For the major currencies (GBP, EUR, USD, CAD) same day and next day currency transfers are the norm. All the companies use priority SWIFT technology for all transfers, which is the fastest and safest way to transfer funds bank-to-bank anywhere in the world.

As with all bank-to-bank transfers the time it takes to receive cleared funds in your beneficiary account is also dependent on the foreign bank and any intermediary banks to forward credit the funds. However, some of the companies have procedures that will help alleviate these delays should they occur.

All solely specialise in currency exchange and bank-to-bank transfer, and the sheer volume of transactions from both corporate and private clients that are dealt each working day means that accuracy and efficiency is their trademark.

Can I fix my exchange rate now for a future purchase?
Yes, an exchange rate can be fixed for up to 2 years in the future. This means that you can determine exactly how much you need to spend on a future purchase without having to worry about fluctuations in exchange rates prices between now and the future.

This type of currency buying is called a Forward Contract as opposed to a Spot Contract. With a Forward Contract 10% of the trading amount is required on the trade date with the remaining 90% on the value date of the trade (i.e. the future date when the funds are required).

If you do not know the exact date of when your funds are required then a Time Option (Flexible) Forward Contract can be requested. This allows you to take early delivery of your funds or draw out part of the full amount before the value date if required.

How does Compare money transfer make their money?
It all sounds too good to be true – great exchange rates, personal dealers, no commission, free transfer fee – many people naturally will be sceptical of the service we are offering.

Foreign Exchange Comparison makes its money from the companies that advertise on the site either by advertising campaigns or by a commission structure. Our services are free to the consumer, providing independent, impartial free information.

Where as Banks deal with hundreds of different financial products and the complexity of their operation means that they are bound to fall short in how cost-effective and efficient they can manage their operation. Compare money transfer business is solely Foreign Currency. This allows us to show you the information so that you can make the right choice for you.

How do I avoid foreign bank receive costs?
Some foreign banks, especially those in Spain, charge a premium to receive funds from abroad. This can be as much as 3% of the amount to be transferred, which is considerable.

There are several ways that receive costs can be avoided. If the funds are sent to a notaire account or a resident account in that country then there will be no receive charges, i.e. ask if you can send your funds directly to your foreign solicitor or estate agent account.

You may be able to negotiate with your bank to reduce these charges. But make sure you get written confirmation from them before you send out your funds.

All the companies listed have procedures to open bank accounts on your behalf in a foreign country whereby you receive no charges whatsoever. If you intend to make repeat transfers it makes sense to have this banking facility open.

What will the exchange rate be tomorrow/next week?
This really is a 100 million dollar question. If we knew, we’ll all be millionaires!

A specialist cannot advise you of what future rates will be or when to buy currency, but they can give you the facts, such as trends from current and past historical data and the latest market information, to which you can make an informed decision. More importantly, a specialist acts as your eyes and ears and will contact you at the most opportune time when the rates are in your favour.

The currency market is one of the most volatile markets. The most traded currencies which include the EUR, USD and GBP have seen huge fluctuations in recent times due to instabilities in the global economies. Even when historical trends are strong, there is no guarantee that future trends will follow the same pattern. Speculating on future exchange rates is an extreme risk – one which is not recommended. If someone says they can guarantee what the exchange rate will be next week – would you trust them?

A specialist will try and minimise currency risk through trading options such as Forward Contracts and Limit Loss orders to guard against adverse currency fluctuations.

What affects currency exchange rates?
Generally speaking, exchange rate movement relies solely on macroeconomic factors – “big picture” issues and concepts. Significant movements in exchange rate can be attributed to three main factors:

Interest Rates
Each currency has a central bank, and this central bank issues an overnight lending rate. This is a prime gauge of a currency’s value. In recent history, low interest rates have resulted in the devaluation of a currency.

Unemployment Rate
The unemployment rate is a strong indicator of a country’s economic strength. When unemployment is high, the economy may be weak – and hence its currency may fall in value.

Geopolitical Events
Like all markets, the currency market is affected by what is going on in the world. Key political events around the world can have a big impact on an economy and the value of its respective currency.

How can you minimise currency risk?
There are several ways where we can protect your investment against adverse movements in the exchange rates.

Your personal dealer will keep you informed of any significant changes in the exchange rates so that you can make an informed decision of when you wish to exchange your currency. For total security of mind, a Forward Contract, Option and Limit Order can be placed.

A Forward Contract allows you to fix today’s exchange rate for a future time when you will need the currency. This allows you to budget without worrying about future market fluctuations, furthermore only 5-10% of the fund is required now to secure the currency.

An Option Forward Contract gives is like a Forward Contract with the flexibility for you to draw down the full amount or part amounts before the maturity date.

A Limit Order is an agreement for them to automatically book the currency when the exchange rate reaches a pre-defined value. The Limit Order may be placed below and/or above the current exchange rate; this will protect your investment from adverse currency movements whilst taking advantage of positive movements in the market.

A Forward Contract and Limit Order can be used in combination. For example when the exchange rate reaches a defined value, automatically fix the exchange rate at that point and have the currency available in 3 months time.

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