Making the most of currency exchange
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If you are running a business in France, it’s important to get your currency exchange arrangements right. Laura Parsons explains how you can use brokers to your advantage to ensure you get the best deal
Over the course of the past 12 months the global economic situation has shown some signs of improvement, but most developed nations are still operating below their pre-crisis peaks.
France is one such country which has struggled to regain an even footing, with rising levels of unemployment and reduced output being areas of particular concern.While recent reports have shown that the French economy expanded by more than forecast rates in the final quarter of 2013, the nation’s return to growth is tentative and risks still remain.
In such an environment, the businesses that see the most success are those which capitalise on opportunities to stay competitive and do what they can to maximise their profitability. Companies with overseas commitments, for example, can give themselves an edge by taking the time to look into the different ways of handling their foreign exchange requirements.
Your French business might require you to manage a foreign payroll, meet import/export costs or pay royalties, and using your bank to transfer these funds often seems like the least stressful option. However, using a reputable currency broker is just as straightforward and can be much more lucrative.
Generally, currency brokers work on much smaller margins than high street banks, which means they can beat the exchange rates they offer by an average of 1-3%.
To put this in real terms, if your business had to transfer £50,000 (to pay for materials, rental or employee wages), securing a better exchange rate could save you over £1,000 on that transfer, and the more money you move, the more money you save.
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If your company has to make regular overseas payments or transfer substantial sums of money, executing the transactions at a better exchange rate can make a huge difference to your bottom line. Most banks also charge a transfer fee of £10-£30 per transaction, which can amount to hundreds of pounds’ worth of fees over the course of the year.
As currency brokers make their money on the spread (the difference between the bidding price and the asking price of a currency pairing) they charge neither transfer fees nor commission. By using a currency broker to handle your corporate foreign exchange requirements, you could save hundreds of pounds in additional costs as well as saving thousands by securing a more favourable exchange rate.
Specialist insight currency brokers can also provide extremely useful information, as exposure to the volatility of the currency market is one of the biggest risks facing businesses with overseas commitments.
Exchange rates are highly erratic and can move by up to 10% within just a few weeks. If you haven’t got the time to devote to monitoring market movements and currency trends, your business could be stung by an adverse shift in the exchange rate.
To prevent this happening and to help you safeguard your funds from currency risk, brokers offer expert guidance. With their support you can take a proactive approach to your foreign exchange commitments and maximise profitability by making your transfer at the most financially rewarding time.
Currency brokers are also able to give businesses access to specialist services like ‘forward contracts’. With this form of contract you have the option of fixing an exchange rate for up to a year in advance of a trade.
Fixing a rate in this way means that you can prevent your profits from being eroded by negative fluctuations in the market. It can also help you to budget for future expenses more effectively. This is imperative if you are intending to purchase business premises, for example, or make another kind of substantial business investment.
Similar services available include ‘limit orders’ (where a currency is purchased automatically once it hits a pre-agreed rate) and ‘stop orders’ (where a currency is bought as soon as it drops to a pre-set minimum level).
Meanwhile, if your French business needs to send money overseas on a regular basis (for the paying/receiving of wages, for example), the regular overseas payments service offered by some currency brokers could prove to be particularly useful.
Once your account is set up, regular payments are carried out at a competitive exchange rate automatically on a day of your choosing. More than one plan can be taken out at a time, and you won’t be charged transfer fees or commission.
This is a cost-effective foreign exchange solution for businesses which need to make regular transfers of between £500 and £10,000 on a monthly, bi-monthly or quarterly basis over a minimum period of six months.
To put this in real terms, if your business is based in France but you have British employees you may need to convert euros to sterling in order to pay their wages into their UK bank accounts. Using a bank to make these transfers could cost you £40 a month per transfer in fees, plus extra in commission, whereas a currency broker would conduct the same trades at no extra cost.
Setting up an account
The first stage of the process typically involves registering your details with the broker either by phone or via an online form.
Once your details are logged and your client account is opened, you’ll be assigned an account manager who can talk you through the options and help you pick the most suitable contract for your company’s requirements.
Your account manager will also be responsible for keeping track of market movements and informing you as soon as any pertinent fluctuations occur.
Once you are happy with both the exchange rate offered and the type of contract proposed you can book the trade and send your funds to your client account. After the funds have cleared, your currency broker will complete the trade by swiftly and securely sending the foreign currency to the beneficiary account on a pre-agreed date.
Future trades will be conducted with even more expediency, and you’ll soon start seeing a considerable difference in the cost-effectiveness of those overseas dealings which require currency exchange.
Whether you’re a large public company or a small family-run business, looking into your currency exchange options and using a broker rather than a bank means you could benefit from 0% commission, no transfer fees, a more competitive exchange rate, expert guidance and increased flexibility.
These are all important factors which could ultimately make your French business much more profitable.
Laura Parsons is a currency analyst for TorFX
Tel: 01736 335233