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| What do your money, central banks
and terrorist acts have in common? |
| August
2006 |
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| “When it
comes to currency, I would urge you to enlist the help of a specialist
unless of course you have a local bank where the staff are workaholic insomniacs
with foreign exchange market experience and a manager unhindered by profit
targets.” |
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| What is
a guy to do? Planning a move between countries is convoluted enough
without further complications but it seems the central bankers and terrorists
have plans to make your life as nervous as possible. However you can thwart
them. The problems that these two groups pose to the international migrant
are that their actions affect the value of your funds. |
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| I am well
aware that terrorism poses enough threats already without me identifying
another one but the variation in the value of your money could pose a significant
threat to the wealth you arrive with in your new home. We saw the complications
that central bankers can bring when the Bank of England and European Central
Banks both hiked their base interest rates by 0.25% on 3rd August. |
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| The
reasons given by each bank varied a little but the overwhelming thrust
was that their economies are growing, particularly in the consumer sector
and the Central Banks have to reduce the availability of cheap money to
temper demand and thus reduce inflation. |
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| This is a
perfectly valid argument for each of them but the European Central Bank
has slightly less credibility in doing so when German manufacturing is
struggling to grow and the borrowing requirements of individual EU states
are still out of step with the ECB’s target levels. |
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| The Bank of
England is coping with UK inflation at the top end of their Government
imposed 1-3% target. This is driven by a buoyant housing market, which
in turn creates confident consumers; these factors allied to relatively
strong economic growth do lend weight to their decision. However, what
amazed traders and analysts alike is the sudden change of heart that took
the Bank Of England’s monetary policy committee from a unanimous vote for
an unchanged interest rate in July to a majority vote for an interest rate
hike just one month later. |
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| Whilst
these shenanigans were going on in Europe, the Federal Reserve, America’s
central bank, announced that it had reached the end of a two-year, seventeen
step interest rate raising cycle which took US interest rates from 1% all
the way up to 5.25%. |
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| Leaving
their interest rates on hold created a lot of nervousness amongst financial
markets because traders were unsure whether this was a pause or a complete
change of heart and the exchange rate volatility reflected this ambiguity. |
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| And just when
the markets were truly unsettled, the British security services announced
that they had foiled a plot to blow up airborne transatlantic jets. |
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| The fantastic
news that the plot had been thwarted didn’t stop the dread that people
all over the world feel when these murderous insane plots are discussed.
Mention
September 11th to a New Yorker or 7th July to a Londoner and the same chill
can be seen running down their spines. |
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| Traders
are not immune to these feelings and their reaction to the potential
for death and destruction in the name of some radical misbelief was to
scurry away in search of a safe haven for their funds. Consequently, when
the 10th August plot was unveiled, the US Dollar actually gathered some
strength while the Pound was understandably not the flavour of the day. |
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| All of this
is kind of academic I know but if you are migrating there is a direct relationship
between events like these and your funds. |
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| For those
in the midst of a move from America to London, for example, the direction
of the Sterling – US Dollar exchange rate over the last few months has
been hugely expensive. This rate has risen from $1.81 to over $1.91 in
the space of just a few weeks; a ten cent variation. Now I know a dime
doesn’t sound like a lot of cash but when you lose a dime for every Pound
you buy, you are giving away more than 5 percent of your funds. |
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| To scale
that up, the average migration that we handle at Halo Financial equates
to approximately $300,000. 5 percent of this is (I’m sure you are way
ahead of me on this) $15,000. That’s enough to buy a small car in Britain
and certainly enough to make a difference to the deposit you will have
available for a home in the UK. |
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| Obviously,
the opposite is true for you if you are planning to move from the UK to
the US; the recent changes in exchange rates have delivered a late summer
present of equal proportions and with cars being less expensive in the
US, $15,000 will be a welcome extra upon your arrival in the home of the
brave and the land of the free. |
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| So the
twin facts that UK interest rates are on the rise and US interest rates
have ceased to rise for the time being have conspired to offer US bound
migrants a chance to capitalise on their good fortune and those with a
move on the cards to the UK with a dilemma; do you take the current exchange
rate in the belief that things can only get worse or do you wait in the
hope that the GBP-USD exchange rate will fall in your favour? |
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| Understandably,
the actions of the terrorist on British soil have unsettled the Pound and,
ironically the decline in the value of Sterling compared to the US Dollar
could well deliver the break that UK bound migrants need. It does seem
odd that there may be a silver lining in the dark clouds of international
terrorist activity but Americans coming to the UK may just make a financial
gain as a direct result of this lunacy. |
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| However,
all of this is theoretical unless you can actually capture the exchange
rate when it is attractive and I know that this is a problem through high
street banks whether that high street is in Dorset, Dakota or The Dordogne. |
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| High street
banks are just not set up to offer the sort of facilities that migrants
need to capitalise on positive exchange rate movements or protect themselves
against negative ones. |
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| For a start,
the branch staff have no need to understand the currency markets beyond
dispensing holiday cash. |
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| The question,
“Is the Dollar going to get stronger?” will not yield and explanation
of the market forces at play or the technical analysis of the Sterling
– US Dollar exchange rate and, to be frank, why should it? Branch staff
are not trained in these matters because it isn’t necessary for them to
understand the currency market in the course of their day to day jobs.
A specialist currency Dealer is just that; a specialist. |
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| For example,
Consultants at Halo Financial are all trained to understand and explain
the currency markets in layman’s terms and have access to live and relevant
market data to ensure they; and therefore their clients, know what is happening
when it is happening so you as a client can take advantage or protect yourself,
as circumstances dictate. |
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| Secondly,
few banks offer the ability to book exchange rates in advance. Just because
the GBP-USD rate is terrific today does not mean that it will remain so
for the next three months while you finalise your house sale and move to
the US. |
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| Without
the means to capture this exchange rate, you will need to buy more
tissues to mop up the tears while the rate ebbs away and your final exchange
rate is quoted several percentage points worse than today’s. |
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| With a
specialist like Halo Financial, you can secure a contract based on
today’s exchange rate but delay the actual exchange of funds until a date
in the future that meets your needs. These are known as Forward Contracts
and mean that, for the advance deposit payment of 10 percent of your funds,
you can secure an exchange rate for all of your money at a rate to suit
you and at a time that maximises the exchange rate you receive. |
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| And thirdly,
bank branches are only open bank hours but the foreign exchange market
is a twenty four hour a day market which commences trading in the Far East
on Sunday evening (UK time) and finishes for the week on Friday
evening (UK) when the US markets close. It’s not quite 24/7, more
like twenty four, six and a half but what this means is that the very best
exchange rate for you may only be available in late New York trading while
you are tucked up in your pyjamas in England or perhaps the best exchange
rate will occur in Tokyo trading hours while both UK and US migrants are
catching some zzzzzz. Perhaps your bank branch would stay open for you
to make sure you get the exchange rate you want! |
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| You can
ask but I dread to think of the language you might encounter in the answer.
Some specialist currency dealers will be able to offer you market tools
called ‘Limit Orders’. These are automated orders, monitored around the
globe and around the clock to ensure that if your ideal exchange rate is
available in any part of the market, you get what you need without losing
a wink of your beauty sleep. |
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| At Halo
Financial, we find these to be a fantastic tool particularly for transatlantic
migrants and those moving between Europe and Australasia where the time
zones are disparate and the possibility to benefit from the trading hours
the other side of the world, where exchange rates can be far more volatile,
are very attractive. |
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| So I guess
the moral of all this rambling is that whatever the central banks do and
however the terrorists try to disrupt out lives, with the aid of the
right information, the right tools and the right attitude, your move to
a new life abroad can be cost effective and less hassle than you perhaps
perceived. |
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| When it comes
to currency though, I would urge you to enlist the help of a specialist
unless of course you have a local bank where the staff are workaholic insomniacs
with foreign exchange market experience and a manager unhindered by profit
targets. |
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| So I guess
that is only a few of you then. |
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| David Johnson
is a foreign exchange consultant with Halo Financial Ltd helping both private
and corporate clients to simplify their currency dealings and to achieve
improved exchange rates through market insight. For further information
please contact +44 (0)20 7350 5474 or visit the website www.halofinancial.com |
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