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
Thursday, 26 August 2010
Thursday, 19 August 2010
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
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
Friday, 13 August 2010
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
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
Friday, 6 August 2010
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
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
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