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
Wednesday, 28 July 2010
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
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
Wednesday, 14 July 2010
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
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
Wednesday, 23 June 2010
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
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
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