Advice before using a currency company

 Check that the company you are dealing with is a fully FSA regulated “payment institution”. You can check the register at www.fsa.gov.uk/register/home.do

 Make sure the company keeps client’s money in a separate bank account. You can ask them for a letter from their bank that will show this

 Avoid companies that ask you to pay the full amount upfront for a forward contract (i.e. money that you pay at today’s exchange rate but actually transfer in the future). They should only ask for a small deposit of say 10%

 Avoid companies that do not require a deposit at all for a forward contract. This may sound strange but if they are doing this for all their customers they may have more risk than they can cover

 Avoid companies that are offering you a rate the same as the “interbank” market rate or better than it. The interbank rate is the rate banks deal with each other in very large amounts and effectively it means they are getting absolutely no profit out of your transaction. Personally I would ask myself why…You can find interbank rates at www.worldfirst.com

 Avoid companies that don’t require you to provide any identification documents. These are required by law in terms of money laundering regulations. If they are not doing the required checks it may suggest that the company is not a registered money services business.


For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

How you can protect yourself from increased currency costs

Goodness, what a difference a few months make! For the first half of this year sterling was moving ahead against most currencies as the coalition government took their first steps to stabilise the UK economy. Then suddenly…all change.

What exactly happened? The possibility of further quantitative easing is what happened. Investors hate the thought of Governments printing money simply to boost its economy. The UK economy is stalling and, with the recent implementation of the austerity cuts, there is a significant worry that the stall may turn into a recession.

Could you have protected yourself from increased currency costs following the sudden loss in value of sterling against the euro? The short answer is yes.

In September, a business client was negotiating a deal to import €100,000 worth of rubber from Europe. Throughout the negotiation process, the exchange rate was hovering around €1.20/£1, so the client used this as their budgeted rate of exchange for the purchase. They did not need to pay until January 2011, in which time the exchange rates could potentially move back down towards €1.10/£1, the rate seen at the start of the year. At the same time, the client didn’t want to tie up £84,000 for four months by buying the full amount of Euros there and then.

When the client came to place the order with the currency company, the exchange rate had dropped to €1.19/£1. It was agreed that there was scope to target a higher rate than €1.20/£1. It was also agreed to use a forward contract, whereby the client would secure the full €100,000 at the given rate but only pay a small holding deposit – thereby maximising cash flow until the client needed to pay. Given the market sentiment at the time, the client left an ‘order to buy’ with his currency company. This meant that when the exchange rate hit a higher level, the Euros were secured for him by the currency company at the preferential rate.

As hoped, the market moved and a price of €1.2160/£1 was secured for the client – a saving of nearly £2000. In addition, since then sterling has dropped by nearly eight per cent against the euro and is now at €1.13/£1. Currently, the client is over £6000 better off and by payment time it could be much more.

So…a very happy outcome for the client.
Are you managing your risk in the same way as this client did? We continue to be in very volatile times and who knows where to next for sterling? If the Bank of England decides to undertake further quantitative easing, will we see sterling lose further ground against the euro? Probably yes is the simple answer – but, as we all know, we could see the opposite happen as the market is full of surprises! Always consult your currency company for their input into the best course to take – it could save you a lot of money.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

Security of funds

Each day millions of pounds flow through our client accounts and the security of these funds is paramount.

From the first day that Smart Currency started business in 2005, the funds of the business have been kept separate from the funds that belong to the client. This means that, in a worse case scenario, the funds still belong to client and not to the company.

In November 2009 new regulations were introduced. Effectively this meant that companies like ours that wanted to carry out international transfers and were of sufficient size had to register with the FSA as Payment Institutions [PI’s]. We were delighted to do so; this meant that the way we had always operated was now recognized as the best and the safest way to operate, namely with client’s funds held separately and thus properly safeguarded.

I think it is worth highlighting that not all companies who carry out international transfers are PI’s. Companies with a turnover below a certain level can operate as Small PI’s [SPI’s], which come with a different set of requirements. These do not include operating separate client accounts.

Crown Currency was such a SPI; they specialised in holiday money and they were not required to keep their company’s money and the client’s money separate. This meant that, when problems arose, the clients lost out - a very unsatisfactory position if you happen to have been one of their clients.

Another key requirement that the FSA introduced for PI’s is that they should have a minimum level of permanent equity in the company. At Smart Currency we exceed the minimum level of permanent equity required by the FSA by a very significant margin. And, as our business grows, we ensure that the level of permanent equity we hold in the business increases too.

I hope this is of assistance in providing a better understanding of how secure your funds are with Smart Currency. Our aim is to help you reduce the costs of your transfers, make them more efficient and to eliminate the risk and stress of that transfer.

If you would like to discuss any of the above please feel free to give us a call on 0207 898 0541 and we will be more than happy to go through it in detail.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

How To Better Manage Your Currency Exposure

In today’s erratic financial climate companies need to take all the precautionary measures they can to ensure that deals they make do not break the bank when it comes time to actually paying for them some time down the line.

Clearly, a key part of that process is for a business to cost the project properly. And, if buying from or selling to a company abroad, it needs to make quite sure that it has costed in realistic currency exchange rates. It must also know how to manage the risk of those exchange rates moving against what has been budgeted.

Using a forward contract can be a powerful tool in hedging your exposure.

Since the beginning of 2009, the €/£ exchange rate has moved between €1.02/£1 and €1.22/£1. That is a difference of 20 per cent.

So, if you were importing or exporting goods with a euro value of €1,200,000, you could be looking at a sterling figure of either £1million or £1,200,000. Put simply, if you get it wrong, you could be looking at increased costs, or lost income, of £200,000.

So…which would you prefer? You could get it right and benefit by that amount or you could find yourself scrabbling around to find an extra £200,000.

It’s a no-brainer.

How do you make sure that you are not caught out by an exchange rate that goes against you? By taking out a forward contract is the answer.

What does a forward contract do? It secures an agreed amount of currency at an agreed exchange rate for an agreed date in the future, secured by a small deposit. And you don’t have to pay the balance of the full amount until that agreed date unless you so wish. And, if need be, you can extend the agreed date.

So, in this example: you may budget an exchange rate of €1.11/£1 so the expected cost/income was £1,081,081. And, if we assume we were buying goods from Europe and were able to secure a forward contract at say, €1.15/£1, then you would have reduced your cost to £1,043,478 – a saving of £37,603 which flows to your bottom line. Better than having to buy at an exchange rate of €1.02/£1 and face an additional cost of over £95,000 – probably turning a profitable contract into a loss!

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

Deflation or inflation - which will win?

Over the last 18 plus months the economies of the western world have been recovering, albeit slowly, from the depths reached in late 2008 and early 2009.

Most people must have thought this was inevitable, as surely the only way was up for the world’s economies, given the extent of the pull back we had seen in production and sales.

But it is important to remember that the governments of the western world had thrown everything at their economies - including the kitchen sink - in an effort to kick start them. Also, it has to be remembered many companies destocked at the start of the crisis and some of the growth.

Here in the UK, the level of government debt grew significantly and our budget deficit spiralled out of control as they battled to save a number of banks and pump money into the economy. But this can’t go on for ever and the new coalition government has made it clear that government costs have to be slashed and the books balanced as soon as possible.

Similar actions are being made elsewhere. The embattled southern states of the euro zone; Spain, Greece, Italy and Portugal, are implementing their own cuts in government spending and as such, we see businesses suffer and unemployment rising.

In the US, we saw the withdrawal of various incentives used to encourage people to consume when the “cash for clunkers” and the homebuyers tax credit were both withdrawn. The slump in house sales that followed the withdrawal of the homebuyers tax credit resulted in its reintroduction for a further 6 months - but the effect this time round is proving to be somewhat muted, with exiting house sales for July 2010 hitting a 15 year low.

And where has all this money that has been pumped into the banks ended up? Mainly in their balance sheets rather than being lent to their customers. There are a number of reasons for this.

The banks themselves have to rebuild their balance sheets to cover their losses, both actual and possible and they are also being forced to increase capital levels under new legislation. And the final reason is that their clients are borrowing less because their working capital requirements are reduced given the lower level of activity.

So, we are now beginning to see most western economies beginning to falter and this is worrying their respective governments as it raises the spectre of deflation.

Pimco, one of the worlds biggest fund managers, have carried out two detailed analyses in the last 12 months on the state of the US economy with the aim of working out how likely the US is to suffer from deflation.

First time round they calculated the chances at 10%. This time around they have calculated the chances at 25%. Quite an increase.

So why are the “powers that be” so scared of deflation?

There are a number of reasons, but the one that stands out in my mind is an almost self reinforcing economic cycle that ends up in a deflation spiral.

Consumers start saving because times are tough. This reduces consumption. Prices then come down as sellers try to stimulate demand. But consumers decide to hold off buying as they believe the goods will be cheaper next month. Sellers reduce prices further and consumers decide to delay buying yet again. So on it goes.

Okay, this is a very simplified economic model, but in many ways, it mirrors what has happened in Japan for the last two decades. It is also has a huge affect on employment which falls away as the sellers are unable to sell their goods and have to lay people off.

Japan has its lost generation of unemployed and a banking system that is still full of bad debts that should have been written off a long time ago.

So a lot to be frightened of if deflation comes to the economies of the western world, but how likely is this?

As per the Pimco’s analysis, I think the likelihood of deflation is higher than people think.

Consumers are scared. Clearly low interest rates are helping those with debts, but if economies aren’t growing and people’s jobs aren’t safe, all they will do is pay off those debts and start saving for a rainy day.

Governments have much less ammunition in their armoury than they did 12 months ago and will be unable to try and fund growth in the same aggressive way - and banks are rebuilding their broken balance sheets rather than lending.

So the alternatives seem fairly simple.

A one in four chance of deflation - or a three in four chance of growth - albeit somewhat muted for the next few years.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

Getting Your Money to Your Destination

by Smart Currency’s Charles Purdy.

There are a lot of advantages to using a currency company such as Smart Currency Exchange; better rates, one to one service, proactive management of currency requirements... the list goes on.

But one of the major advantages sometimes overlooked is that, as well as being experts in foreign currency, Smart Currency Exchange are also experts in transferring money. This may not seem such a big deal but getting a transfer wrong can be a hugely time consuming and frustrating experience to rectify.

The details required for transfers seem to vary from continent to continent and we have a clear understanding of what is required. If there is something unclear or lacking we would ask our client to clarify: better to get it right the first time.

Transfers of the euro have become much easier with the advent of what is called the IBAN number. This number is unique for a specific bank account and it can be checked for validity before sending the funds. The only time I have experienced a problem was when a client’s lawyer gave him a wrong but valid IBAN number. Thankfully this was realised very soon after the transfer and we were able to correct error with no loss of time.

Time is also an important element when making a transfer. The whole banking system is based on a time period of two days for transfers. The reason for this seems to be one of logistics and coordination between the banks [or am I being naïve and it is really a way for them to make more money?!]. This two day period still applies to most transfers but for the US$ and euro we can now transfer with a same day value. Needless to say there is a cost, but we absorb it – no hidden charges at Smart!

I hope the above is of help. It is the unglamorous side of the business but a key component in ensuring that clients are properly serviced.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

Can your company risk losing £1,000's?
In the last 3 months, sterling has strengthened by 10% against the US dollar, recovering from $1.45/£1 to all but hit $1.60/£1 a few weeks ago– the highest in 6 months. This equates to a 10% discount on all goods for companies that import in US dollars.

Before we take a brief look at why this has happened and what to expect over the coming months, make sure you get in touch with a currency specialist to secure the best rate possible by calling 0207 898 0500.

Over the last 18 months, the US dollar has enjoyed what is known as ‘safe haven’ status. Much like when ships head for shelter in a storm, investors have bought the US dollar in order to hold safe investments and ultimately avoid losing their money. The safest investment has been US government bonds. What happened, for example, following the collapse of Lehman Brothers, was that the US dollar strengthened and then rather strangely, when strong data started to come through, investors bought more US dollars in order to benefit from the potential interest rate hikes that better economic data brings.

However, in the last 3 months, there has been a change in how the US dollar is being bought. Following 3 quarters of positive growth, the US economy has begun to lose steam. A stalling housing market and poor employment data has caused investors to question the ‘safe haven’ status of the world’s biggest economy and recent GDP growth figures came in far worse than expected. In addition, interest rates had been widely expected to start rising later this year, but Federal Chairman Ben Bernanke made clear recently that the Federal Reserve could look to do the opposite – pump more money into the economy to add some stimulus. Not what investors wanted to hear.

In the UK, confidence was at rock bottom when the election failed to secure a majority government. Since then though, the new coalition has addressed fears over strong government with decisive action – both through the emergency budget and wide ranging spending reviews – and the financial markets have to all intents and purposes given David Cameron a stamp of approval over his plans to aggressively cut the budget deficit.

In addition, UK economic figures have impressed recently. GDP growth estimates almost doubled what had been expected, showing expansion of 1.1% in the 2nd Quarter of 2010. Industrial manufacturing and services data has also showed expansion which in turn adds to investor confidence in the UK. There is a concern however that the aggressive spending cuts will stifle growth in the next 12 months, and this has limited the pound’s upward run at $1.5999/£1 – the highest seen for 6 months.

Where now? With the psychological barrier of $1.60/£1 seen as a ceiling to further strength, there is not much scope for movement above that level in the short term without an unexpectedly positive piece of data. The bigger risk is that the optimism will fade out and the pound returns to $1.55/£1. Do what so many of our clients do and take advantage of the stronger pound, fixing in rates using forward contracts. With such huge percentage swings in exchange rates, one thing is clear: you should be outsourcing your currency requirements to a specialist to help guide you through the volatility of foreign exchange markets.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

Ideal Payment Options for International Currency Exchange

Every foreign money exchange provider has its own set of options that clients can use to exchange their currencies to suit their requirements. However, there are some methods that are safer and more profitable both for the customer and the company that you should make the most of.

One option for payment is the spot contract method, which allows you to send a lump sum of cash in your desired currency within a couple of days. You may need to use this spot contract when you need to make payments like bookings, deposits, initial fees and other transactions that are required before closing a deal. You can send the foreign currency directly to the bank or institution of the recipient fast and easy, so that you can proceed with your business overseas.

The second payment option is a forward contract, and this helps you secure the exchange rate especially if you are working within a budget. For example, if you are buying a piece of property abroad, with the constant market fluctuations, the going price that you were given can rise drastically, forcing you to pay much more to get your property. With a forward contract, you can buy your currency at its most affordable rate today, and then pay any additional amount later. This way you can even make some returns for your investment without worrying about price changes.

A third foreign money exchange option is order to call or order to buy. These are different methods of payment, but they are both for someone who is trading in the currency markets with no urgent need for returns. In the two options, you state the rate at which you are willing to buy the currency in the near future. When the currency does reach your estimate, the order to call option is where your currency trader asks you whether you want to buy the currency, while the order to buy is where your trader buys the currency for you. These options can be used at the same time with different currencies, so you stand a chance of making good returns for your currency trading.

Another payment option that gives you control of your currency trading is the limit order. As the name suggests, you can limit the rate at which your traded currency will reach, that is, give it a ceiling, and then opt to buy or sell the currency for profit. You will need to observe the currency trading market for quite a while to establish your preferences to use this option.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

Long Term Purchase Contracts

I attended an interesting seminar the other day where a corporate finance expert was explaining the different ways to raise finance. He also explained how business can sometimes misunderstand the relationship between cash flow and profitability. The example he gave was one where a company had agreed to reduce the time it paid one of its main suppliers for a discount in the cost of goods. However, the net affect was that they needed to find additional cash to fund the increased working capital of just under £1m. This wasn’t easy and the business very nearly went bust even though they were profitable and early payment discount increased profitability.

That is why we find that a lot of our clients in the railway industry tend to maximise the length of time they have to pay their suppliers so that don’t unbalance their working capital.

But that can lead to other problems especially if they are buying from overseas as the company then becomes exposed to a currency risk. As many importers have found the cost of goods have gone up by over 25% in the last two years and this can quickly change a profitable contract into a loss making contract. And none of us like working hard when we don’t make any money.

So how do you handle marry the two; working capital vs. profitability.

Lets work with a recent situation we helped resolve. A client had entered into a supply contract where he needed to pay just under €1m in nine months time. He had budgeted for an exchange rate of €1.10/£1 for these goods. However they also knew that the nine months could change depending on how quickly the job progressed and therefore they needed flexibility in any commitment they entered into to.

The main risk was that sterling weakened. Nine months is a long time. Not that long ago sterling nearly hit parity against the euro. That would represent an increased cost of nearly £100,000 and make the contract marginal if not loss making for their business.

In the end we entered into a forward contract for the purchase of just under €1m at a rate of €1.147 at any time up to the 31st December 2010. The client paid us a deposit of €40,000 to secure this contract. Against budget he had made a saving of nearly €50,000. An added flexibility was he could very easily extend the period of the contract if he needed and any cost would be minimal. He could also buy his euros early as he had entered into what is known as an “open forward contract” which again means that there was no penalty for paying early.

We did discuss the possibility of only securing the rate for part of the purchase cost because there has been talk of the euro weakening because of Greek debt problems. But the conclusion reached was who really knows what could happen over a nine month period given the extreme volatility of the last two years. So best to secure the reduced cost and focus on what they were good at.

If your business is in a similar position please give us a ring because we know how important it is to get these things right and always easier to do it with an expert who understands all the different alternatives that exist.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

Free lunches...!

The old adage states that ‘there’s no such thing as a free lunch.’ But is this always true? I think not – and I’ll tell you why. Because of the Internet and changing marketing practices today, there is a virtual treasure trove of valuable information available - and most of it is free! Now, I don’t dispute the fact that there’s quite a bit of drivel, however, if you’re interested in gaining a greater understanding about almost anything, the Internet provides an incredible starting pint - and a potential finishing point too.

In terms of marketing practices today, many organisations have learned that the best way to help consumers to purchase their products is to educate them rather than to manipulate, coerce or control them. Just last week, a friend of mine was in absolute misery due to ‘morning sickness.’ She was aware that many women experience nausea during pregnancy yet she was unequipped for just how bad it could be. After a few days of extreme discomfort, she went onto the Internet, discovered around ten ways to minimise the effects – and, within an hour, she was armed with several options – all for free!

After a lot of research and much useful and free advice she eventually settled on an e-book on ancient Chinese pressure points. Within 2 days of purchase her ‘morning sickness’ was a thing of the past. Both the education and the e-book proved invaluable…most of the advice she had used was free and the book was good value: job done.

In this case it had not been absolutely free - so…what about having that free lunch and saving money in the process?

Smart Currency Exchange, the international payment specialists, offer two free reports that not only help readers to make more educated decisions but that also enable them to save hundreds if not thousands of pounds in the process. One report is for individuals that need to make large lump sum payments or small regular payments between Cyprus (it could apply to anywhere abroad) and any country outside the EU (say, the UK). These payments can include paying for a property or making mortgage or pension transfers. The other free report is for companies that need to buy or sell goods or services with countries outside the Euro zone.

Both reports outline how the international payment process works, with a focus on where and why particular expenses occur. Once the reader fully understands this, each report details exactly how to eliminate, if not reduce, the various costs and expenses. The reports allow readers to get valuable free information and, in the end, each reader will be armed with various tools to reduce their expenses dramatically, thus saving money too.

The information has been written in an easy-to-read format with absolutely no jargon. It outlines common mistakes that people make, along with case studies, so it’s easy to relate the information to everyday life. And neither report is longer than 10 pages – giving the reader quick, valuable information that can be assimilated in under 10 minutes.

Just by reading the Smart report could save you huge sums of money. On average, international payment specialists save individuals and organisations €40 for every €1,000 transacted through better-than-bank currency exchange rates. That means that someone buying a property in, say, Cyprus or repatriating back to the UK could save €8,000 on a €200,000 property. Or, an organisation that’s buying or selling goods could save €4,000 on a €100,000 transaction!

Getting better-than-bank currency exchange rates is only one of the tools that the reports discuss. Another significant aspect in relation to the international payment process is planning. If you need to exchange money and the markets are not looking favourable, it’s possible to reserve or lock into an exchange rate even if you don’t need to do the transaction right away.
Imagine having to move €400,000 back to the UK in a month’s time, knowing that the rate is at 1.10 with forecasts of it getting weaker. Imagine watching the value of the €400,000 go from £363,636 to £350,000 – it’s enough to make anyone’s stomach churn – and this type of situation is completely avoidable! By reserving a rate today, you’ll know that the value of the exchange will not change at all in a month’s time.

In conclusion, if you have any need to make international payments, by reading one or both of the Smart reports, you’ll not only get a ‘free lunch’ (something of high value at no cost), but you’ll also learn how to save money throughout the process. So, to find out how to save money, from an individual’s perspective (rather than a company) please go to http://www.smartcurrencyexchange.com/FreeCurrencyReport.aspx to collect your free report.

As for companies, or anyone sending or receiving funds for business purposes, just go to http://www.smartcurrencybusiness.com/freeCurrencyReport.aspx to collect your “free lunch!”

There is absolutely no obligation – or strings attached! Our hope is that you read the reports and are so enthusiastic about the potential savings that you call us. The worst thing that can happen is that you spend 10 minutes reading educational material only to choose that saving money isn’t for you…

Charles Purdy is a Director at Smart Currency Exchange, the international payment specialists. To get more information on us – or any of our educational material – you can also call us on 0207 898 0541.

Here is a slightly irreverent testimonial for Smart from Ian Munro!
I would like to express my satisfaction with the ease and convenience of using Smart Currency Exchange. My money was placed into my designated account within 24hours of transfer at the rate I wanted. I guess the biggest pleasure is reserved for knowing you can stick your finger up to the Banks with their less than generous rates and tardy service. I will definitely use Smart Currency Exchange again.

Thank You,

Ian Munro.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

What Factors Affect Exchange Rates

The one thing I am sure of is that expert comments from people like me do not move exchange rates. Having been involved in currency exchange for over 15 years I am confident my understanding is extensive and continues to grow. But the sheer size of the currency market, which dwarfs every other trading market, including the US and UK stock exchanges, means that comments from someone like me are quickly forgotten.

So given the enormous size of the currency market what on earth makes exchange rates move?

A significant proportion of the currency market is for bona fide business reasons such as the need to hedge a possible exposure to a loss from sudden movement in an exchange rate. Also, the physical delivery of currency forms a part of the market - but this is minimal when compared to its overall size. Probably the most important part that affects exchange rates short term is investors who “bet” on exchange rates and their future movement.

So what are they on the look out for?

Sentiment is an important factor. When the world saw long queues outside of Northern Rock Bank there was only one way for sterling to go - and that was down. This is probably a fairly extreme example of market sentiment affecting a currency and its rate of exchange as sterling fell against every other currency.

Most of the time, exchange movements will be more constrained with say, the US$/£ exchange rate moving differently to say, the €/£ exchange rate. These movements tend to be driven by the never ending flow of economic data released daily by all of the worlds’ developed economies. Most of this data will already have been forecast by the seemingly infinite number of economists who spend their life predicting the future. Because of this only very rarely will one piece of economic data have a major affect on exchange rates and then only if it was totally unexpected. So this is a rare occurrence although in recent times less rare than it used to be.

One thing that more often than not has an affect on exchange rates is announcements by a country’s Central Bank. Any announcement by the Head of the US Federal Reserve, or the European Central Bank, or the Governor of the Bank of England will be closely scrutinised by all and could even have a very dramatic affect. Take for example, the surprise announcement from the Bank of England that they wanted to increase the UK quantitative easing programme by £50billion - and then this surprise was compounded when it became public that the Governor of the Bank of England had wanted to increase the programme by £75bn but had been outvoted by his fellow BoE members. Sterling had a very bad month following these announcements, as they highlighted the UK economic problems - plus the contents of the announcements caught the markets by surprise, which as noted above, is never good.

The Central Banks also control their respective interest rates. Recent events have brought interest rates to record lows. Investors are now watching events very closely as they want to know when the Central Banks are going to increase interest rates and which country will be the first to do so, as these will be the most likely to see their currency benefit relative to others.

But at the end of the day, there is one major factor that affects the underlying value of a country’s currency - and that is that country’s longer term economic performance. Why has the UK suffered unduly? Clearly, some of its banks having to be bailed out were a major negative for sterling. However, a country that operates a budget and balance of payments deficit cannot go on borrowing forever. What these dual deficits mean is that the UK government has to keep on borrowing more each year [even before the credit crunch] to fund government spending and also the UK has to rely on other countries to invest in it to fund the continual flow of money out of the UK. As we all know personally, such a scenario can only go on for so long and the same logic ultimately applies to a country - and when confidence in the country is lost, the currency will suffer. The euro zone has one major plus: the undoubted strength of the German economy, the world’s greatest exporter. So even though there are some basket cases in the euro zone, the German economy is the cash generator that will keep it going.

At the end of the day, there are a myriad of factors that affect exchange rates. However, there is no way of really calculating how an exchange rate will move as these factors all work on different timescales and with different levels of affect. That is why I always try and get companies I work with to have a very clear understanding on what their currency requirements are, over what time period and what their targeted exchange rates are. If you can bring some certainty and clarity to such a complex market with so many variables, it really does help.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

A Company Expense the Banks Don’t Want You To Know About…

Thousands of UK company owners and managers are focusing on two actions to survive the recession – reduce expenses and keep enough cash coming in to cover costs. Those that can’t reduce overheads quickly or are subject to a large loss of cash-flow are the organisations that will ultimately collapse.

Being forced to reduce spend is a painful process. Making lists of employees to lay off along with sourcing cheaper offices, finding less expensive materials and slashing marketing budgets are all activities that cause serious upheaval. Additionally, the weight of wondering whether or not the efforts will save the organisation can cause owners and employees to suffer extreme stress.

There is however an overhead that organisations could cut immediately, yet many don’t know that it exists! Once removed, this overhead could potentially allow a company to save thousands and ultimately stay solvent!

The Hidden Overhead Exposed
If your company pays for goods or services in a currency other than Sterling OR receives payments in a currency other than Sterling, you may be paying out more money than necessary.

During the process of making and/or receiving international payments (from Sterling to Euro, US$, etc or vice versa) the banks can take a substantial margin without you even realising it. This margin can add significant cost running into many £'000s, and in some instances nearly 5% can be added to an organisations annual costs. The sad fact is that this overhead is completely unnecessary.

The banks profit from providing poor exchange rates and charging various fees. They also fail to assist companies with the money saving option available to fix exchange rates so that budgets are maintained. Although many exchange rates are unfavourable right now, it’s possible to ensure that you fix a rate so that it doesn’t get any worse over the course of the next few months or year.

Exploitation of UK Companies
The outrageous truth of all this is that the banks have caused an economic collapse, they’ve then paid bonuses for failure and to add insult to injury, they continue to cause massive financial issues with UK organisations by exploiting them on the international payment process.

Thankfully, there is a solution. By using an international payment specialist, you can completely eliminate the unnecessary costs charged by the banks. A specialist will be able to provide exceptional exchange rates, reduce and/or eliminate all fees along with mentoring organisations as to the options available to minimise risks and save money. On average, specialists can save companies 3% (or £3,000) on every £100,000 transacted. Further savings can be accomplished when working in tandem with a specialist to set and achieve budgeted rates. To avoid being further exploited by the banks discuss your options with an international payment specialist today.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

An Option the Banks Won't Tell you About....

by Smart Currency’s Charles Purdy.

It is often thought that the only way to buy currency is by paying for it in full.

Most buyers that don't know about currency options buy the currency as and when it is required - they wait until the last minute. This is what the banks love their clients to do as the client is 'forced' to buy at the rate the bank offers.

Some buyers buy the €’s immediately when they know the amount even if they don't need to use them for 3 months. Buyers do this to avoid the cost of the euros increasing so they know their exact costs.

However there is a more efficient alternative that the banks fail to tell you about.

The alternative is to secure your currency requirements (without paying the full amount for them) using what is known as a forward contract.

Pretend that you require €100,000 in three months time and you don't want to risk the sterling cost increasing by £5-10,000. (An increase can easily happen due to changes in the exchange rate between now and 3 months time)

You can agree an exchange rate for those €’s now. All that would be required is a deposit of up to 10% of the sterling purchase cost.

This means that you don't need to pay the full amount for the euros now, so you can keep 90% of your funds in a sterling high interest account. By doing this you will know EXACTLY how much you will require when it comes to pay for the €’s in three months time. (You'll know that you won't need to pay an extra £5-10,000 )

It may sound complicated but is very simple to do when you work with a company like Smart Currency Exchange. And the joy of such an approach is that it removes all the uncertainty and the associated stress and strain as you know exactly what your cost will be.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0500 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

Why Businesses Lose THOUSANDS on International Payments

Are you a business using your bank for international payments or receipts? Then according to Charles Purdy, “You could be losing thousands. Depending on how much you transfer, in some cases your losses could amount to tens of thousands each year - and these losses are entirely unnecessary. But how can you avoid them?” Charles explains further.

Transfer Fees
You probably know international bank transfer fees are a nominal €20 to €30 per transaction and over the course of a year these fees add up. Even if you are only doing 5 transfers per month at €25 per transfer this is €1,500 per year – and these fees can be reduced, if not eliminated.

Bank Margins
Banks make their money on international transfers by selling currency at the interbank rate plus a margin which in some cases can be very significant. The margin applied by the banks could cost your company 1.0% one day and perhaps 1.5% another day! Most banks do not apply a fixed margin - nor do they offer competitive exchange rates. This means that the variable cost of your company making an international payment for €100,000 could be €1,500 or even higher. Rather than using a bank, it is possible to arrange an agreed fixed margin.

Failing to Fix a Forward
So what does this mean? A forward contract allows your company to reserve a certain amount of foreign currency at a fixed exchange rate to be used by a certain date.

In other words, in January 2008 your company could have reserved the rate of €1.33/£1 for £2million of euros to be used throughout 2008/2009. To secure a forward contract all your company needs to do is supply a deposit of 5 to 10%. Any company who fixed an exchange rate early in 2008 for either €'s or US$'s would have saved themselves huge additional costs as sterling weakened throughout the year.

The Alternative
By using a specialist, your company can reduce fees, get rates that are more competitive than the bank and reserve money at fixed rates for use in the future. Some specialists offer a transparent fixed margin allowing companies the peace of mind that they’re getting a good rate for every transaction.

Charles added, “At Smart Currency Exchange, we perform international payment "audits" free of charge, to identify the level of cost savings possible for your company. The savings experienced are always welcomed - particularly in this current economic climate”.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

How Smart Differs…

A couple of days ago I was asked a very simple question by someone who was thinking of buying property abroad: “How do currency companies differ?”

He went on to add: “They all seem the same…they seem to offer the same benefits when I speak to them about transferring money abroad. How do I know which one to choose?”

Actually, the people at Smart Currency Exchange are often asked this…and their reply is that there are enormous differences between Smart Currency Exchange and any other exchange company, differences that could make a world of difference to you.

Firstly, Smart Currency Exchange is the only currency company in the UK that does not pay their traders commission – they get a regular salary. That fact alone will allow you peace of mind that you’re not in the hands of someone who is trying to make the most money they possibly can out of you.

Secondly, they do not spend thousands of pounds on marketing. Generally, the word is spread via the Internet and by word of mouth, from one contented client to their friends and relations. This means that Smart is able to save vast sums on advertising and this is reflected in the exchange rates they are able to pass on to you, the client.

Thirdly, Smart is totally dedicated to personal service, a rare thing in this day and age. I don’t know about you, but if there is one thing that absolutely MADDENS me it is when I phone somewhere – be it my bank, water or currency exchange company – and I spend the next half an hour pressing buttons and listening to ridiculous messages like ‘Your call is important to us’ – quite clearly it isn’t, otherwise they would actually be talking to me!!

When you phone Smart Currency Exchange, you will actually speak to REAL PEOPLE - people who can explain the whys and wherefores of transferring currency abroad and all about currency exchange rates. So please, don’t hesitate to pick up that phone and ask questions about this – Smart’s currency experts will have heard them all before and will be delighted to help you. You will immediately speak to someone who can clearly and concisely explain the whole process to you.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

The Election and how it has effected the Currency Market

The UK has just had one of the most hotly contested elections in living memory which, as expected, resulted in a hung Parliament [no one party having a clear majority]. Whilst we saw the pound gain initially as the new Conservative – Liberal Democrat coalition was announced, it has fallen even further and has hit a 13 month low against the US dollar as the reality of the situation facing the UK has hit home. With the election now firmly out of the way, what will drive the value of the pound over the next few months?

Sterling has come under attack in the last few months over political uncertainty related to the perceived ‘weakness’ that a hung parliament would bring. Why has this been a problem? The UK needs to match income to expenditure that means tax hikes and spending cuts in order to start paying down the biggest deficit since WW II. Neither the Conservatives nor the Liberal Democrats made it clear in their manifestos exactly how they would tackle the huge deficit. Sterling has weakened since the election as the government has promised £6bn of cuts in the next year and many are concerned – especially with poor housing figures released this week – that aggressive cuts will stifle out the fragile growth that we have seen so far since the credit crunch. Looking at the UK relative to the USA, where interest rates are expected to rise at some point later this year, the USA becomes a far more attractive investment than the potentially stagnant economy of the UK. Whilst the markets have embraced the new government’s stance on aggressively cutting the deficit, they are tentative over its implication.

The new chancellor George Osborne releases his first budget on June 22nd, in which he will outline where the cuts are to come from in order to attack the record deficit. For the pound to strengthen there needs to be a clear plan of action that the financial markets thinks is realistic and addresses the core problems and which the “ruling” parties can agree in order for any legislation to get passed. This may seem like too much to ask. Firstly, there are potentially deep ideological differences between the parties on how policy should be implemented and it is likely that the markets will be sceptical of any budget clearing plan – especially given the scale of cuts and savings required.

As it stands, the outlook for the pound is poor against the US, Australian and New Zealand dollar or South African rand as these economies seem likely to retain the relative upper hand over our own. There may be one light at the end of the tunnel for sterling – the Euro zone. With the Euro zone in the midst of a debt crisis, the pound could take advantage and strengthen. Could we see sterling hit €1.20/ £1 in the coming months? We will have to wait and see. The best thing to do is call in sooner rather than later and speak to a currency specialist to ensure that you avoid missing out on favourable rates and ensure that you don’t lose money by buying at a poor time.
Call 0845 638 0571 (or +44 (0)207 898 0500 from outside the UK) or visit our website at: SmartCurrencyBusiness.com


Jargon Buster - Hung Parliament

This is where no one political party has a clear majority following an election. You usually find that the political party with the most seats takes the lead but they need to rely on other parties to support them. The support could be either in the form of a lose political agreement or based on a detailed agreement similar to the one we see between the Conservative and Liberal parties here in the UK.


For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

New Government & Sterling by Charles Purdy

So we have a new government in the UK. An interesting set up and certainly a bold move by David Cameron to move things forward. It certainly must be a dream come true for many of the liberals who probably thought they would never have any ministerial positions ever.

There has been lots of talk about the deals being done on electoral reform and nuclear deterrent but the key is still what is to be done about the huge budget deficit and the need to match government income to expenditure. Initial talk is about an emergency reduction in government expenditure of £6bn but this will only be the start and not nearly enough.

What will the effect be on sterling? Initial reaction has been neutral to slightly positive.

But given on-going problems in the euro zone where the rescue package announced last weekend seemed by many to be an effort to paper over the cracks and some fundamental problems still needing to be resolved, sterling could start to gain especially if this coalition government does have the willpower to sort out the deficit.

And against currencies such as the US$ and the commodity backed currencies such as the Australian and Canadian dollars sterling could continue to weaken as they are ahead of us in their economic recovery.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0500 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

Stop Banks from Cashing in on Your Company’s International Payments

Part Four: How do know an international payment specialist is safe?

Many British companies make payments to or from the UK and in the process they unintentionally lose money. In some cases, losses can be tens of thousands of pounds. This is part 4 of a special 4-part series that has been written to outline how the bank-to-bank international payment process works, the specific areas where companies are losing money, definite actions that can be taken to contain or to avoid losses altogether and how to make sure the process is safe. At the end of this article you will find details on how you can download the full series of articles.

In the previous three parts, I explained that companies can save money by using an international payment provider rather than using a high street bank. Compared to the mark-up applied by the banks on a money transfer, clients can save up to £4,000 on a £100k transfer by using a currency specialist. And on regular monthly payments of £1,000 a saving of up to £40 per month is more than possible - that’s £480 a year. The other way to save is by enlisting the help of a specialist to reduce and/or eliminate fees - it’s sometimes possible to save £50 to £100 on every transfer.

I also explained that rather than being forced to take the exchange rate on the day that the money needs to be transferred, there is the option to buy a ‘Forward Contract.’ This allows organisations to reserve a fixed exchange rate over a period of say, 1 year. Although many exchange rates are unfavourable right now, it is thus possible to ensure that it doesn’t get any worse over the course of the next few months or year.

Plus there is the option of the ‘Limit Order’. This is for organisations that don’t necessarily need money urgently, but are happy to buy or reserve it for use at a later date if the rate is beneficial and as discussed with their currency company. This means that if you have regular payments abroad that you know about in advance and if the money market hits that pre-determined rate, your payment specialist will aim to buy the currency for you so that the value of your currency remains the same, thus making budgeting easier.

But what about the safety of using an international payment specialist over a bank? How can you ensure they are legitimate? How can you make certain that your funds are protected? When doing business with any company, especially one that will be handling your cash, it’s very important to do your due diligence and check them out. These are the main details you’ll want to research:

Companies House – make sure that the organisation that you’ll be sending funds through is a registered company at Companies House. Most organisations will display their company number on their website or on the letterhead and you can enter the unique number online to review their status.

Regulated by HM Customs & Excise – all international payment organisations must be regulated by HM Customs & Excise. To check that a particular organisation is registered, you can visit the Customs & Excise site and enter the company’s MLR number. The site will verify the company is on their books.

Financial Services Authority (FSA) – as of 2009 all institutions that move money international need to be authorised by the Financial Services Authority under the Payment Services Regulations 2009 (FRN 504509) for the provision of payment services. This FSA statement needs to be clearly highlighted on all company materials – including the website. So if you don’t see the FSA statement, make enquiries.

Location of the Bank – since the fall of Northern Rock and issues with the Icelandic Bank, many Brits have worried about guarantees from their banks. How much money will they guarantee to pay out if the bank goes bust? British banks only guarantee £50,000 per individual, whereas Irish banks have various schemes that can guarantee the full amount_. When selecting an international payment provider, if you’re moving funds over £50,000, it might be worth finding one that moves funds through the Irish banking system.

This concludes the special 4 part series. The key point to take way is that international payment specialist can help your organisation to reduce the expense associated to making/receiving payments overseas.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

Stop Banks from Cashing in on your Company’s International Payments

Part Three: Securing exchange rates for the future

Many British companies make payments to or from the UK and in the process they unintentionally lose money. In some cases, losses can be up to tens of thousands of pounds annually.

This is part 3 of a special 4-part series that has been written to outline how the bank-to-bank international payment process works, the specific areas where companies are losing money, the actions that can be taken to relieve losses and how to ensure the process is safe. At the end of the article, there are details on how you can download the full series of articles.

In the previous two parts, I explained that companies can save money by using an international payment provider rather than a high street bank. Savings can be made by buying currency at rates that are better than offered by the bank. Compared with the mark-up supplied by the banks, there’s a possibility of saving up to a 4% on your transfer. On a £100,000 transfer that’s a reduction of £4,000 by using a currency specialist rather than a bank. And on a regular payment of £1,000 a month, that’s a saving of £40 per month or £480 a year. The other way to save is by enlisting the help of a specialist to reduce and/or eliminate banking fees. By doing this you could save £50 - £100 on every transfer!

Apart from saving money on better exchange rates and reduced banking fees (or indeed banking fees eliminated altogether) companies have a wide range of options when it comes to working with an international payment specialist. Rather than being forced to take the exchange rate offered on the day that the money needs to be transferred, there are alternatives that could save your organisation money.

You cannot control the impact of overseas prices, inflation or the actual exchange rate. However, you can and do have the ability to save on the cost of international payments. Many organisations fail to take sufficient time in planning for the cost of international payments and some don’t even realise they can actually take specific action to minimise the effect of changing exchange rates, which ultimately equates to squeezed profit margins.

The most common option that can assist companies greatly is to secure what is called a ‘Forward Contract’. This allows your organisation to reserve a currency exchange rate at that day’s rate while not paying for it in full or sending the money until an agreed date in the future. Only a small deposit is required to reserve a currency exchange rate. Indeed, you can fix the exchange rate for your company’s international payments for up to one year if it’s beneficial for your organisation to do so!

Due to historical data many companies know the approximate amount of foreign currency required over the course of the year. For example, they’ll know that last year £10,000 was spent with a supplier in Brussels and £24,000 was spent with another in Spain and so forth. Larger organisations may need to move in excess of £100,000 monthly, quarterly or annually. With this knowledge of future orders combined with the ability to fix a currency exchange rate, it is possible for smart UK businesses to reserve a currency rate for up to a year knowing that if the cost of foreign currency inflates it will not impact on the organisation’s margins.

By using a specialist, UK companies can reduce fees, get rates that are more competitive than the bank and reserve money at fixed rates for use in the future. Furthermore, some specialists offer a transparent fixed margin allowing organisations the peace of mind that they’re getting a good rate for every transaction.

If your European supplier will be selling you x amount of parts throughout the year are you happy for the price to change and even increase day by day? Would you be comfortable watching the exchange rates change, knowing that if sterling weakens your profits decrease? This is what happens when companies fail to plan a currency exchange strategy by fixing a budgeted rate. What the banks don’t tell you is that massive losses can be avoided.

In Part 4 of this 4-part series, I will explain how to research an international payment provider so you ensure the process is safe.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com

Stop Banks from Cashing in on Your Company’s International Payments

Part Two: How to reduce fees

Many British companies make payments to or from the UK and in the process they unintentionally lose money. In some cases, losses can be up to tens of thousands of pounds! This is part 2 of a special 4-part series that has been written to outline how the bank-to-bank international payment process works, the specific areas where companies are losing money, the actions that can be taken to alleviate losses and ways to ensure the process is safe. At the end of the article, there are details on how you can download the full series.

In part 1 of this series, I explained that companies send and receive money to and from the UK in large lump sums (for buying, selling or distributing products, parts or services internationally) and regular payments (for services rendered on a regular and ongoing basis for example). My main premise in part 1 is that the actual process of moving money isn’t rocket science, however the commission, currency exchange rate and fee structure imposed on clients by the banks can be extremely confusing. Rather than using a bank, there are specialist international payment organisations that assist their clients to save substantial amounts of money throughout the process. One of the ways in which they do this is to offer better-than-bank exchange rates. For every £1,000 exchanged the savings on better rates could be up to £40 – extend that over a series of payments, or on one large payment and it can really add up.

To continue, another way that banks profit from their clients is through various charges throughout the money transfer service. The charges imposed often include a fee to purchase foreign currency, another fee to send the funds and a charge from the overseas bank for receiving the funds. Before you know it, you can easily lose around £50 - £100 in fees for each and every transfer.

When working with an organisation that specialises in currency exchange and international transfers, you’ll discover various methods of reducing and often eliminating fees. For example, when transferring funds from the UK to Europe through a bank, you’ll often be charged £20 to £30 for the privilege. However, if you transfer funds from your bank using the Internet or Fast Payment system to a currency specialist, it’s possible to completely avoid the charge.

As for charges concerning the movement of funds overseas, most currency payment specialists charge a nominal value if the transfer is under £3,000 - getting better-than-bank exchange rates more than compensates for this small administrative fee. And all transfers over a particular amount, say £3,000, are sent free of charge. It’s important to note, however, that not all currency specialists will help their clients with regular low payments (for example, under £500).

The bank receiving fee can prove the most costly of all. Most companies aren’t even aware that this exists until they have an angry supplier or client on the line complaining of a short payment! European Law dictates that receiving banks are allowed to charge a ‘nominal fee’ on amounts under €50,000. ‘Nominal’ is open to differing interpretations and can vary considerably. If you are going to send regular payments, it’s often a good idea to remind your client and/or suppliers of this fact and suggest that they check with their bankers. In Spain for instance it’s not uncommon for banks to charge 1% of the value of money coming in or going out, so by comparison the charges that some UK banks make aren’t that bad.

With regard to receiving bank charges, some currency exchange and transfer specialists agree to absorb this fee – it’s best to check with them when booking your transfer. Whether you need to make a series of large payments or several transfers throughout the year, avoiding or reducing the various charges that the banks impose can save a lot of money. By researching the bank that will be receiving your funds along with working with your payment specialist, you could save money and boost profit margins.

In Part 3 of this 4-part series I will explain an option that companies find extremely valuable as it allows for securing set exchange rates for the future. This in turn helps companies to formally set budgets that won’t fluctuate when exchange rates move.

Call Smart now for more information on 0845 638 0571 or visit http://www.SmartCurrencyBusiness.com

Stop Banks from Cashing in on your Company’s International Payments

Part One: The unnecessary cost of making or receiving international payments

Many British companies send money to, or receive money from, overseas organisations and in the process they unintentionally lose money. In some cases, these losses can add up to tens of thousands of pounds! This series of four articles has been written to outline how the bank-to-bank international payment process works, the specific areas where companies are losing, definite actions that can be taken to lessen these losses and how to ensure the process is safe.

Initially, most companies are introduced to the international payment process when buying, selling or distributing products, parts or services internationally, be it in Europe, America, Australia or the Far East. To complete the transaction your company will have to either buy or receive the relevant foreign currency necessary.

Whether transferring large or small amounts internationally, either on a one off basis or regularly, it’s the same procedure. The company making the transfer instructs their bank to send the amount due to the beneficiary’s bank overseas. When calculating the amount due in the overseas local currency, the bank will instruct the buyer of the cost of the currency and they will be debited accordingly. Within 5 days of instructing the bank, the funds in the designated currency will hopefully arrive and clear at the overseas destination.

The actual process of moving money isn’t rocket science – however, the commission, currency exchange rate and fee structure imposed on companies by the banks can be extremely confusing. And, taking advantage of this confusion, the banks are able to relieve companies of substantial sums of money without them even realising it.

There is a high cost associated with the process of converting foreign currency and many business owners are unaware of just how high this cost truly is! When you go to your bank, as opposed to an international payment specialist, to make or receive international payments, you could be paying up to 4% more than you have to on poor exchange rates alone. That’s £4,000 paid out unnecessarily on every £100,000 exchanged and transferred.

Unlike payment specialists, who get rates from the live market throughout the day, some banks set their rates just once, in the morning. Whether you call your bank to get a set rate or are given access to live bank rates, the bank sets a wide differential between the rates that they buy money at and the rates that they sell it for. This means that they create a cushion or gap that allows them to make a profit even if the rate moves against them by quite a large margin during the day.

Payment specialists, on the other hand, differ from banks in that they do not set their rates at the start of the day but call into the market at the time of the transaction to get the best rate for the client. Because they are working with live rates, they can get closer to the interbank rate, thus saving their clients huge sums of money.

What exactly does ‘interbank rate’ actually mean?

This is the rate you’ll find in the newspaper, on the news, on teletext and on most currency-related websites. This is not the rate that will be used when you transfer currency for your company – rather it is the rate that banks themselves use when they’re moving their own money. This rate does however give you an indication of where the rate is and what direction it’s moving in. It also gives you a rough idea as to how much the foreign currency will cost your company.

When you do decide to buy currency or to make an international payment the institution that you do it through will put a ‘mark-up’ over and above the interbank rate. Banks have been known to charge clients up to 4% more for popular currencies such as the euro and US dollar and up to 9% for less commonly requested currencies. Contrast this with a payment specialist’s low margin of only 1% and you can quickly calculate the savings.

Poor exchange rates are only one of the ways that the banks make unreasonably high profits from their business clients. In the next part of this series, I’ll explain how they also charge organisations for the privilege!
Call Smart now for more information on 0845 638 0571 or visit http://www.smartcurrencybusiness.com/

If you would like to receive all four parts of this article together then please contact us on 0845 638 0571

How will the general election affect the cost of your future international payments?

Find out what are the ‘experts’ predicting…

Sterling has dropped nearly 8% against the US dollar since January.

The UK recovery is at best slow-moving whereas the US economy has enjoyed two consecutive quarters of positive growth significantly better than the UK’s.

Also, in the last few weeks, political concerns in the UK have taken hold– namely the possibility of a hung parliament.

On March 1st, sterling dropped 3% to a 9 month low against the US dollar as a Sunday Times opinion poll put the Conservative lead at 2% - lacking the required majority to avoid a coalition government.

This is an issue for the financial markets as a coalition is likely to lack the political willpower to push through the tough legislation required to clear the UK’s record budget deficit.

The investment bank Nomura are forecasting a 35% chance of a hung parliament and if that happens, many analysts are predicting a ‘sterling crisis’ as investors avoid the UK completely.

From recent market reaction, it seems that the best outcome for sterling would be a clear Conservative victory (60% probability according to Nomura). If this doesn’t happen, the pound is likely to suffer.

And a hung parliament is not the only problem…

Another major problem for sterling is the Bank of England’s program of “Quantitative Easing” (the pumping of money into the UK economy). At the moment it is on hold, but the door has been left open for further emergency measures should the economy need further stimulus.

The consequences of further money being injected into the economy are more than likely to be disastrous for sterling.


US dollar and Euro predictions

If this were to happen (which is not too unlikely given the mixed nature of the economic data released recently) analysts are predicting sterling exchange rates heading towards:

- US dollar $1.40/ £1

- Euro €1/£1 (called parity)

There is likely to be some serious movement in exchange rates over the next few weeks and the period up to the election will be critical for the pound. Whichever way the outlook goes over the next few weeks, expect sterling to see large movements.

Get in touch now to avoid unfavourable affects on your international payments (to or from the UK), as we can help put a strategy in place that minimises your exposure to the market movements. Smart Currency Exchange can supply excellent exchange rates for all popular currencies so ring today on 0207 898 0541 or visit http://www.smartcurrencybusiness.com/


Jargon Buster: Downside Risk

In layman’s terms: Downside risk is the risk of the exchange rate moving against you and causing your payment to cost more.

For example, there is a lot of downside risk at the moment, as the Bank of England has not discounted the possibility of pumping more money into the economy. There is currently a lot of downside risk for sterling as concerns grow over a hung parliament.


How Smart helped at an amazing Grand Charity Event!

On the 26th February 2010 Peace and Harmony Freemasonry Lodge of Paphos held a Grand Charity Event and raised almost 24,000 euros for "Help for Heroes", http://www.helpforheroes.org.uk/ in the UK.

But first of all - what is the charity for? Well, “Help for Heroes” is all about our men and women of the Armed Forces who are injured in the course of their duties. All profits raised will be donated to the charity, which in turn will use these funds to transform the lives of wounded service personnel.

Smart are very proud to have been involved with the event.


Do you need a live quote or more information on just how much Smart Currency can save your organisation? Call 0845 638 0571 or visit: http://www.smartcurrencybusiness.com/ now.

Why do people buy or sell currency at the wrong time?

There are many books written on why investors, when investing in shares, can find it impossible to realise their losses when the share price goes down. There seems to be a big psychological barrier - which means that hope takes over from common sense or good investment practice – and, they believe that the share price will recover to at least the price they bought the share at, and so they will not “be out of pocket”. In fact, a good investor will sell the share, put the loss down to experience, and look out for a new investment on which they expect to make profits. It should be remembered that a good investor could well lose over 50% of the time - but being savvy, they would run their profits, close out their losses and therefore make profits overall.

When it comes to buying currency, even though the process is different, the same psychology seems to apply. We spend a great deal of time talking with our clients and trying to get them to understand the effect of a currency moving against them. If it does, then additional funds would be needed for the buying of overseas goods. Or, the company may get less income than expected for those all important overseas sales and the effect of either on the company would be to reduce profitability and reduce positive cash flow. And, if it was for an individual, it could mean finding an extra £10,000 at the last minute for their dream overseas property - and this could be a somewhat painful experience.

Recently, a client was looking to buy US$’s as he was importing a new range of giftware from China. When we first discussed his requirements with him, the US$ was over US$1.65/£1. He was committed to the purchase of just under US$100,000 of goods, but he was unsure of timing. We went through the advantages of using a forward contract but he had budgeted a rate of US$1.68/£1 and he thought sterling, based on some pundits forecast, was on an upward trend.

15 years plus in the foreign exchange industry has taught me very clearly that no-one can really forecast where an exchange rate is going to go. Only very rarely is it plainly obvious, as when Northern Rock went bust and there were long queues standing outside the branches desperately trying to get their money.

My thought process and discussions with the client were to hedge at least 50% of his requirement at US$1.66/£1. This would reduce the downside risk and allow him to benefit if the exchange rate improved. The trouble was, his budget and his “hope” that the forecasters were right. Yes it would have locked in an increase in cost of just over 0.5% but he would have reduced the downside risk.

So what was the final outcome? Sterling didn’t continue its upward trend because sterling has few friends and any bad UK news tends to be sterling negative. He finally placed a forward contract just above US$1.63/£1 for the full amount. So, against his budget, he “lost” 3% and compared to what he could have bought the currency the first time I discussed the purchase, he lost just under 2%. Thankfully, not disastrous - and not as bad as if he had left the exchange to where the US$ is now [under US$1.60/£1]. But why take the risk and increase the stress when recent history shows how quickly exchange rates can move against you?

The other thought is that he should have been more careful in his budgeted exchange rate. The rate was simply too optimistic given sterling’s history. I always tell clients to work with a conservative exchange rate as this will allow you to plan with some upside - and it’s always nice to have an upside. Having been a finance director of a mining company working on three different continents, I quickly learnt the benefit of doing this as being over optimistic on an exchange rate could have a very nasty effect on cash flow. And, I quickly learnt the benefit of placing forward contracts - because when you deal with the sale of commodities, any change in exchange rate can be measured in £100,000s.

And one final thing I would mention is an “order to call” or an “order to buy”. With these you set a target rate at which you are willing to buy. When the target rate is hit, the funds are then purchased [or we call you to confirm the order] and if made with a currency specialist like ourselves, this order can be placed overnight, so if the rate is triggered somewhere in the world, you get the rate you want. Very simple and removes the strain and stress.

I know human nature is difficult to overcome, but by careful thought and planning, a lot of problems can be avoided when it comes to currency exchange. In certain instances, it isn’t just problems that can be avoided, it could actually be extreme pain if it is the difference between a highly profitable contract and a significant loss making contract.

For information on how Smart can help your company, please go to: www.SmartCurrencyBusiness.com

January has been an interesting month for the UK economy. The first few weeks reported:

• better than expected year-on-year sales growth to December (6%)



• positive unemployment data



• a key member of the Bank of England stating that the Bank would look to raise interest rates earlier than initially expected as the UK was well on the way to recovery

The shift from a very negative outlook for the UK was clear as data continued to come in better than expected. A relatively large jump in inflation cemented this and when data demonstrated that prices had risen by 2.9% over the last year, sterling strengthened to hit 5 month highs against the euro and rebounding to early December highs against the US dollar. This was supported further when the Bank of England put on hold their programme of pumping money into the UK economy (quantative easing).

But just when we thought there was a light at the end of the tunnel…we turn to face more darkness. Sadly – all the good news and positive feelings came to a halt when the UK’s GDP growth of 0.1% for the fourth quarter of 2009 was announced.

Let’s look more specifically now at the euro: One of the major issues over the last few weeks has been the crisis in Greece and the other so called ‘Club Med’ countries of Spain and Portugal. Theses countries have come under severe pressure from investors and the markets to bring borrowing down and cut their respective deficits. With the prospect of no external help (until very recent rumours have started to spread) the euro has suffered and risk aversion has returned to the markets with many investors moving their funds to safe haven currencies such as the US dollar and Japanese yen. What’s this mean for you – keep reading…

Whilst the euro zone problems have helped keep sterling and the UK as a relatively more attractive investment against the euro (and subsequently maintain prices in the €1.13-1.14/£1 region), a side effect of those issues is increased risk aversion that has seen investors flock to the US dollar from sterling and causing the price to head towards US$1.50£1. So far this year, analysts expectations of €1.15 – 1.20/£1 for sterling are still on track, as are the expectations of US$1.50 – 1.55/£1. But like last year, the possibility that the exact opposite happens is quite high because as can be seen from the disappointing fourth quarter UK growth figures, the path to recovery here in the UK is going to be long and hard.

Time to buy, sell or hold tight on euros/ US dollars?
So – what should you do if you need to make a euro payment? If you are willing to take risks, you may be able to afford to hold off a little on euro payments and see how things pan out in Greece as the UK is much closer to raising interest rates than the Euro zone (which would see sterling strengthen).

However, with US dollar payments the sensible approach seems to be to take advantage of anything at the top end of the US$1.50/£1’s, as the US recovery storms ahead and risk appetite/ aversion comes and goes, and the market expects sterling to weaken off against the US dollar.

Do you need a live quote or more information on just how much Smart Currency can save your organisation? Call 0845 638 0571 or visit: http://www.smartcurrencybusiness.com/ now.

Feedback from Smart Business Clients
Excellent service was provided from day one from Smart Currency. The initial response to my enquiry was prompt, personalised and informative. Whilst I appreciate that Smart Currency have many business clients, I was certainly made to feel like their only one! An excellent, professional and personal service to be highly recommended.
NA

Your service has been excellent and we will certainly make our future international payments through your Company. Having never made payments with a currency specialist rather than our bank, we were a little nervous however, you always give us a competitive rate which on the amounts transferred has been quite a saving on the High Street Bank. Thank you.
KB

For more information on how Smart can help your business, call 0845 638 0571 or visit: http://www.smartcurrencybusiness.com/ now.

Jargon Buster: Volatility
The tendency of the price of a currency to move up and down by large amounts relative to other currencies. High volatility in the price of a currency means higher risk that the party making payments will lose large amounts as the exchange rate/price will have a tendency to make very quickly. E.g. John hated the current US dollar volatility as it meant he might not be able to afford his house in the USA.

Do you need a live quote or more information on just how much Smart Currency can save your organisation? Call 0845 638 0571 or visit: http://www.smartcurrencybusiness.com/ now.