Now you know!
David Johnson of currency specialist, Halo Financial, offers his ten top tips to help you save money, manage risk and make the most of the foreign exchange aspects of your international expansion.
Speak with your bank about foreign currency accounts. Having accounts in relevant currencies offers greater flexibility over currency exchange and provides better control over payments and receipts.
If you open overseas bank account, check whether there are any receiving fees for inbound transfers. Some banks, especially Spanish banks, can charge a percentage of the transferred amount and that can run into thousands of pounds in extra costs.
For Euro payments within Europe, make sure your bank or broker uses SEPA transfers whenever possible. These offer much lower costs than traditional wire transfers and are just as speedy.
Start planning your currency requirements very early. Exchange rates move every second of the day and unexpected changes in exchange rates can be very costly.
Shop around amongst banks and brokers for the best service. That doesn’t just mean the cheapest exchange rate. If you are new to currency matters, good guidance and access to market expertise will be invaluable. This is often lacking in online or call centre bank services and staff at your local branch are unlikely to be foreign exchange experts.
Become familiar with the current state of the exchange rates that affect you. There are plenty of websites offering charts and news. You may prefer to speak with a specialist broker to get background information and access to historical exchange rate details.
Make use of the market’s own tools and techniques. Stop Loss and Limit Orders are offered by some brokers, which are excellent facilities to help you limit your risk and to take advantage of attractive exchange rates. Better still, these usually offer 24 hour cover; essential in a market that never sleeps.
Don’t think of your currency needs as all or nothing. It is often better to cover some of your requirements but leave room to take advantage of beneficial exchange rate movements as and when they occur.
If the exchange rate is attractive today but you don’t need to exchange your funds for up to two years ahead, you can use a Forward Contract to set a fixed exchange rate in place for that period. Not all brokers and few banks offer this service but it may be worth seeking the facility for your needs.
If your currency requirements are sizeable and long term planning is required, you may wish to use Options. These allow you to choose whether to exercise your right to buy or sell at specified levels. They either cost a premium to secure or they are more complicated structures with positive and negative aspects. As a rule of thumb, if there is no premium, you need to ask, ‘what is the catch?’ There will be one and you need to know all the pros and cons before agreeing to the deal.