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

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 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

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.