|
| Currency
Exchange and Money Transfers - More Currency Less Worry |
|
| Why are
the rates up and down each day and why are they where they are at all?
None
of this is explained and so potential migrants have every right to wonder
how complicated it will become when they are planning a real and lasting
escape to a new life in a new country where funny money will eventually
become the norm! |
|
| To most people,
foreign currency is all about that funny money you get when you swap your
money at the airport ready to blow it all on your holiday in the sun. In
some places you’ll walk away with a barrow load of funny money whilst in
others your money seems to shrink alarmingly. In either case, it’s hard
to tell sometimes whether that ‘five whatsit note’ in your hand will buy
a cappuccino, a baseball cap or a 5 carat diamond. |
|
| Halo Financial
is a specialist foreign exchange dealer delivering a carefully structured
service helping migrants to save money and even increase their wealth when
they move across borders. In the pages that follow, David Johnson, a Director
of the company with 11 years experience of handling the currency needs
of private and corporate clients, explains some of the common problems
that migrants face when planning their move, as well as some very simple
ways to cut currency risk and help de stress even the most nervous migrant
by removing some of the anxiety that migration brings. |
|
|
|
|
|
|
|
| David and
his team are often alarmed to get calls from clients that go something
like this. |
|
| “I’m boarding
a plane for Australia in three days; I’ve just completed on the house sale
and I need to swap £250,000 into Australian Dollars. A friend told
me about you but how does it work?” |
|
| This last
minute rush is usually set against a familiar backdrop; where the client
has moved out of their home, has packed away all their proof of ID documentation
(essential for establishing a trading facility with a specialist currency
dealer) and, because they haven’t the time to use the volatility of the
exchange rate to their advantage, they end up with a far smaller nest egg
when they arrive in Australia than they should. |
|
| However, at
least this person has had the foresight to use a specialist. Most migrants
will use a visa specialist, maybe an emigration specialist, a removals
specialist, a pensions and investments specialist and then curiously, when
it comes to their hard earned money, they allow a jack-of-all-trades; namely
their high street bank to exchange and transfer their wealth. The bank’s
foreign exchange clerk will have a perfect grasp of holiday money but isn’t
trained to understand the movements in the currency market and doesn’t
have access to the interbank market rates, sentiment or insight that is
required to obtain the best exchange rate for large sums of money. |
|
|
| Consequently,
you receive virtually no information and suffer exchange rates that bear
very little relation to the real market. Using a good specialist will ensure
you gain an understanding of the exchange rate that affects you and a far
more attractive exchange rate when you trade. |
|
| Rule 1
on the migrant’s currency planning is to speak to a currency specialist. |
|
| Rule 2
should be to have that conversation as early as possible in your planning
period. The earlier you speak, the greater the chance that your foreign
exchange dealer will be able to help you save money or avoid currency risk.
What can alarm people is the fact that exchange rates are so volatile.
Most migrants will check the exchange rate once in a while or even once
a day in order to get a ‘feel’ for the movement. David comments that. |
|
| “I am delighted
when clients have a reasonable understanding of the exchange rate but very
few people see the real movement because exchange rates move every second
of the day” |
|
| Take an exchange
rate which is commonly traded for migration purposes; the South African
Rand against the British Pound. |
|
| In the week
commencing 27th June 2005, the daily opening exchange rate was Monday
R12.1855,Tuesday R12.1013,Wednesday R12.0777, Thursday R12.0432, Friday
R11.9465. |
|
| Someone checking
these opening prices would be forgiven for thinking that the exchange rate
fell in an orderly fashion throughout the week and that unless you bought
your Rand on Monday, you would have got a progressively lower exchange
rate as the week unwound. |
|
| In fact, the
highest rate of the week came on Wednesday 29th when the market peaked
at R12.2553. David explains that, This isn’t seen on the daily opening
rates but, I’m trained as a technical analyst, and technical analysts are
looking at patterns of trade. |
|
|
|
|
|
|
| The top of
the channel for GBPZAR (the screen code for the British Pound-South
African Rand rate) at that time was R12.25 and it would be as the exchange
rate moved toward that level that I would call my clients. |
|
| Where migrants
are not aware of the intraday market volatility and/or the significance
of market analysis, the effect will be that Rand buyers are panicked into
buying. This is either because they see the exchange rate drop
and don’t know why it is falling, what range the currency is trading in
and therefore how far it is expected to fall, or because they buy on Wednesday
at the wrong time of day because they have no concept of the highly volatile
nature of the currency market. In either case, the missing factor is ‘Why’. |
|
| David puts
it this way, “If you held shares in a particular company and you
checked the share price one morning to find that it has trebled in value,
should you sell, hold on or buy more shares? The answer is that until you
know why it has moved, any decision would be guesswork.” |
|
| The point
is that a foreign exchange dealer is in the market watching the developments
as they happen and if you have a facility with a good currency dealer,
they will make sure you know when the exchange rate has moved and why,
allowing you to decide whether to buy your currency immediately or wait. |
|
|
| Rule 3
might be to find out why the exchange rate is moving before trading. |
|
| Rule 4
is to buy or book your currency when the exchange rate is right rather
than when your funds are liquid. Murphy’s Law will ensure that the
exchange rate is fantastic before you are ready to transfer your money
but drops when you are and when this happens it is akin to arriving on
holiday in the midst of a monsoon and standing in a hotel lobby dripping
wet while the receptionist informs you that the heat wave they have enjoyed
for the last three months broke last night. |
|
| A better exchange
rate will save you money so letting it slip by makes no sense at all. A
specialist broker should offer forward contracts allowing you to book the
exchange rate today but delay the exchange of funds until a future date
that coincides with the sale of your property or the release of any investment
funds you may have. This is best explained in an example. |
|
| Take the case
of Emma who was asked to relocate from her US office to manage the Toronto
office on a two year contract. On hearing the news in mid June 2004, Emma
checked the exchange rate and calculated that at the C$1.3750 prevailing
rate, she could buy C$275,000 for the US$200,000 that she would realise
from the sale of her house and other savings. |
|
|
|
|
| Emma, having
calculated that C$275,000 would be sufficient for her to maintain her lifestyle
in Canada began to make plans to take up the new post on 1st November and
started a search for a property based on her cash expectations. When she
finally moved on the 29th October and transferred her funds, she was alarmed
to find that the exchange rate had fallen alarmingly to C$1.2200. |
|
| Her US$200,000
now only bought C$244,000 meaning that she arrived in Toronto some C$31,000
worse off in only four and a half months. |
|
| Now Emma
is a fictional character but the exchange rates quoted are absolutely real
and serve to demonstrate the harsh impact that exchange rates can have
if ignored. Emma’s plight could easily have been avoided if she had
bought the Canadian Dollars in advance and taken advantage of the C$1.3750
exchange rate while it was available. She could have done this through
a Forward contract. This is an agreement to buy an amount of currency for
a date in the future at an exchange rate agreed there and then. Obviously,
this avoids any change in the exchange rate in the intervening period and
removes any risk from currency fluctuation. |
|
| A Forward
contract is usually supported and secured by a 10% deposit. However,
don’t despair if you do not possess 10% of your transaction value as you
can still fix an exchange rate against a percentage of your wealth.
This is not uncommon and going back to the example of Emma, if she only
had US$10,000 available to support a US$100,000 trade, she could have saved
herself C$15,500. |
|
| And, whilst
the US Dollar-Canadian Dollar (USDCAD) exchange rate has been used in this
example, the volatility is evident in almost all currency pairs. The British
Pound-US Dollar (GBPUSD) has moved by over 10% this year, British Pound-Euro
(GBPEUR) by 8%, Euro-US Dollar (EURUSD) by nearly 14% and the US Dollar–
Australian Dollar (USDAUD) by 7.5%. On a more positive note, some of those
moving sizable sums across borders will have benefited from the moves. |
|
|
|
| Americans
moving to the UK who waited to exchange their funds through the first part
of 2005 have been handed a 10% bonus on their money. In December, they
would have had to pay $1.95 for each Pound they bought. At the time of
writing, they would only have to part with $1.75 per Pound and so they
arrive in Britain with 10% more spending power. |
|
| So Rule 5
is that sometimes the best action is inaction. The problem for most migrants
is that they simply don’t know or cannot find out where the exchange rates
are gong and the ‘why’ factor is the key to knowing whether to act or wait.
One of Halo Financial’s clients, Sue Tamasauskas, summed it up as. |
|
| “All
I really wanted to know is, should I sell my Pounds now and, if not, when?
It’s that information that David delivers.” |
|
| That is probably
the neatest encapsulation of the concept of market insight and it is precisely
this level of market intelligence that is missing from the high street
bank currency facility. Should I wait or should I act, is the eternal dilemma
for migrants and without a full understanding of the facilities available,
very few private individuals, who have only ever encountered exchange rates
when changing their holiday cash, could possibly have sufficient experience
to make a proper judgment on this. |
|
| Add to this
confusion the dreadful terrorist related events in London on 7th July and
the dramatic effect that such traumatic incidents have on the financial
markets, and that lack of instant information and experience can be very
expensive. |
|
| Another of
David’s clients, Nicola Walker sums it up expertly, “I didn't know
anything at all about exchange rates and markets, but thought my bank wanted
to charge me way too much when buying a property abroad. I was recommended
to Halo Financial by someone who had already bought abroad. In clear, plain
English, Halo explained how the markets worked and what they could do.
I was both reassured and impressed. They even sent me regular financial
updates in an eminently readable and understandable format. I highly recommend
them.” |
|
 |
|
|
