Get the Best Foreign Exchange Rate15 May 2008 - Which Way To Pay
Get the Best Foreign Exchange Rate
Need to Make a Significant Purchase or Move Money Abroad? Avoid Traditional Banks and go to a Specialist Foreign Exchange Bank!
There are many reasons that individuals or businesses need to purchase larger amounts of foreign currency (amounts of more than £5,000.)
You may be buying property, importing a car, investing abroad or emigrating and needing to transfer your bank balance abroad. Of utmost importance is to get a great exchange rate and for the transfer or purchase to be made rapidly and securely. One route available is to use your traditional or high street bank. This is the first, and to some consumers, the only channel to use - individual have got used to paying a commission plus an exchange rate some way off the Interbank spot rate. Consumers have been used to taking a significant cash hit when on Foreign Exchange transaction.
However this needn't be so - using a Commercial Foreign Exchange (CFX) specialist bank offers both a commission free transaction and an excellent exchange rate, marginally lower than the Interbank rate and far superior to a traditional bank. These companies make their money from the tiny margin between the spot rate they buy the currency at, and the price they sell to the client. The majority of the benefit is passed to the client and using a CFX bank is by far the best way to purchase or transfer foreign currency.
It is nearly impossible to receive the Interbank exchange rate as this is only available to the Interbank network of commercial banks, central banks, brokers, and large corporations, the Interbank rate equals the last 3 trades in the market over £10million. Foreign exchange brokers and high street banks buy their currency at wholesale exchange rates close to the Interbank rate and make most of their profit from the difference between the Interbank exchange rate and the rate they offer to their customers.
Looking at the table at whichwaytopay and look at the margin field. Margin refers to the difference between the Interbank exchange rate to the rate offered by the company.
Example: You want to transfer £10,000 to your French bank account, a bank or broker offers a 2% margin on your transaction. If the Interbank rate for Euro was 1.2600 you would recieve an exchange ate of 1.2348 (1.2600 x 2% = 0.0252, 1.2600 - 0.0252 = 1.2348). This would mean you would recieve €12,348 into your French account, not including any fees.
If the exchange rate is highly favourable right now, brokers can fix the rate of exchange at today's rate using a forward contract - even if you won't need the money for up to two years. This is particularly useful for those people who might be buying property abroad, but are uncertain of the final completion date.
Finally, ensure the company you choose has the authority to be a 'money service business' as defined by HM Revenue and Customs. This is important as if affords consumers a level of protection. Brokers aren't regulated by the Financial Services Authority, so the HM Revenue seal of approval is crucial. Happy spending!
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