If you’re not used to dealing with the exchange rates, making a currency transfer can seem downright foreign (pun intended!). For some online sellers, it may be something they have to deal with regularly, but don’t completely understand.
That’s where we come in, with a little bit of information around the currency exchange basics. By simply arming yourself with a little knowledge, you could come out of your foreign currency dealings with more money in your pocket.
Exchange rates offered by banks and international payments companies can vary, and they could differ significantly from the rates that are commonly available on the web. The “quoted” exchange rates from your bank may also differ based on the transaction size and type. For example, cash currency rates are much more costly than international wire exchange rates.
And, of course, the exchange rates themselves fluctuate minute-to-minute. Daily currency values can move as much as 2-3% in response to economic data releases or unanticipated geopolitical events. In short, volatility is the name of the game.
To help you navigate through the unpredictable foreign exchange market, we’ve taken a look at the key areas that could help you better understand how it all works and help you save money on your international wire transfers.
1.) Unlike stocks, the “one-price-rule” does not apply to foreign exchange rates, which can vary significantly between banks and financial institutions.
To make the best of the situation, ask the experts! Reach out to an international payment specialist for a rate that shaves down that profit margin compared to the banks, where bigger overheads may well be handed over to you in the shape of a less competitive currency exchange rates.
2.) The exchange rate you’ll be quoted will be a margin away from the interbank rate – the exchange rate that banks use to transfer money between themselves, or offer to clients exchanging amounts above 7 million. The rate you get will also be based on factors like payment size, currency type, transaction type, and market conditions. In other words, there is no standard pricing rule.
If you are making one, simple payment, you will receive one, simple rate. In general, the exchange rates on larger transaction size tend to be more competitive. When you begin planning ahead to make payments to suppliers or receive funds, a couple more factors come into play.
3.) We’ve already mentioned this, but it’s worth reiterating the volatility of currency markets – from one month or even week to the next, it’s perfectly normal to see currency movement swings of up to 4%.
Why do we keep driving this into your head? Because it can come down to a difference in your bottom line. Paying a supplier in their currency can actually save you money. Not to mention, if you’re an online seller, watching the currency trends can help you with pricing, globalizing your store, and repatriating your profit.
In summary, all exchange rates are negotiated rates between suppliers and sellers for every transaction in today’s 24/7, $5.2 trillion per day foreign exchange market. For that reason, it is important to work with a specialist who has a global reach and know-how to ensure that your exchange rates are fair and competitive. It could make a significant difference to your pocketbook and your bottom line.
John Minn is the chief economist at World First