Nick Jones offers 10 top tips to make sure that you get the best rates when it comes to transferring money to France
10 top tips to help you navigate the currency markets effectively.
1 Sort out the pricing and then set the budget. Look ahead at the known costs and ensure that these costs are covered. Fix these costs in sterling using forward contracts or currency options at the time of setting the budget.
2 Consider using forward contracts or currency options to build in flexibility. If you don’t like the idea of buying all your currency on the day, at what’s called the ‘spot rate’, secure some rates in advance with forward contracts or currency options.
3 Be realistic with rates. Formulate a worst-case scenario to budget against. It is advisable to set your budget 2-5% below where the exchange rate is currently trading to allow some room for movements that are not in your favour.
4 Research views from a few different sources to make an informed decision about expected foreign exchange rates. There is no cost to sign up for regular updates from foreign exchange specialists.
5 Don’t hang your budget off comments in the press. Remember that a wild statement about which way a rate is going gets media coverage. Small rate movements don’t make stories.
6 Simple solutions are not always the best. Instead of simply fixing future payments at a forward rate, use hedging strategies (i.e. currency options) that are tailored to fit your exposure, currency forecast and risk level. This will enable you to protect yourself from adverse rate movements while still benefiting from favourable rate movements. There are experts to assist. An independent foreign exchange broker is like a tailor working to get the perfect fit versus the off-the-shelf product.
7 Assess your exposure to risk with the help of an expert. Different foreign exchange transactions carry different levels of risk and you need to be clear on what implications rate moves will have. Discuss the situation with an FSA authorised broker to help you assess the situation.
8 Sometimes the best hedge is the one that’s best for cash flow, not just for predicted rate moves. A good foreign exchange provider should take all of your needs into account when assessing which approach to recommend. Any hedging strategies must fit in with your day-to-day cash flow requirements.
9 Mix and match. Don’t be afraid to use a variety of products in place for various payments. Different products may suit different situations, and diversification can help spread risk.
10 Assess your foreign exchange provider. As you would for any other business, before entering into an agreement carry out due diligence on your foreign exchange provider. Are they FSA authorised? What is their balance sheet like? Get references from clients that deal with them.
Nick Jones, World First foreign exchange