Mar 16 2010

Foreign Exchange Rates FAQs

Foreign Exchange FAQs

You will be assigned a dedicated dealer who will guide you throughout your transaction. There are three types of deals you can book. A “Spot deal” for those who want to change currency and send it abroad within a few days. A “forward option” guarantees a rate for future purchase and payment. And finally, a “limit order” is executed when the exchange rate reaches a level that you want. We will buy on your behalf and contact you immediately (these deals can also be “fused” as in “spot limit” or “forward limit”).

How does it work?
Just 4 easy steps

1. Open an account with us on the Internet, fax or post at no cost or obligation.
2. Once the account has been opened, we will provide you with the most competitive rate from the market.
3. If you wish to proceed with that rate, we will guarantee and confirm it in writing in a matter of minutes.
4. We will then transfer your money to any destination in the world.

Our service is simple and hassle free.
You will remain in control with the free option to cancel at any stage

Frequently Asked Questions
1. We can help you to buy a property overseas
2. You get the best rates
3. Protect your capital
4. Buying a property outright: how do you deal with us?
5. Opening an account, placing your order
6. Built-in protection
7. Making the most of your time and your money
8. Rigging the safety net: the ‘stop’
9. Buying outright: spot the ‘instant’ deal
10. Buying properties under development
11. ‘Forward’ transactions
12. Forward pricing in practice: the ‘fixed forward’
13. Forward pricing in practice: the ‘forward option’
14. Forward options and the private client
15. Spot the ‘instant’ deal: buying outright
16. What happens next?
17. How do you settle your account?
18. Who transfers the currency to its destination?
19. What do you owe us?

20. How do I start?

1 We can help you to buy a property overseas
Let’s take another look at the property-buying scenario from our introductory page. Then let’s discover how different the experience would have been if we had handled the transaction instead of your bank.

You have found a property in Europe. It is for immediate sale. You are able to buy it outright. The price is €100,000 . Your bank quotes you an exchange rate of €1.55 to £1, which equals to £ 64,516.13 . It takes a month to finalise the paperwork. You then give your bank the go-ahead to buy the €100,000 . But instead of asking you for a total of £ 64,516.13, the bank demands £71,428.57 . An additional £6,912.44 .

During the four weeks since the bank quoted its rate of €1.55 to the £1 the Euro has strengthened. Now £1 buys a mere €1.40 . (It could have been worse and could have happened faster).

You were aware that the market fluctuates from time to time. But never for a moment did you anticipate such an adverse change in such a short time. Even if you were aware of the risk, you were unaware you could protect yourself against it. No-one at the bank mentioned the subject. No-one referred to ‘stops’ and ‘limits’, the automated mechanisms which big business uses as a matter of course to protect their money when undertaking foreign currency exchanges. Nor did you have any idea that you might have been able to find a more advantageous rate than 1.55 to the £1 in the first place.

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2. You get the best rates
Let’s look at this all-important question of the currency exchange rate. The rate offered to you by your bank is not the one and only rate available. And it certainly won’t be the best, simply because the major banks make their money out of dealing in corporate millions, not by dealing in the sort of sums that buy an attractive overseas property.

We aim to provide a foreign currency exchange service which fills this very gap. And because of the sheer volume of transactions we carry out on a daily basis – not just on behalf of property-buyers, but primarily of small to medium businesses – we can obtain the foreign currency exchange rates normally available only to large corporations: ‘wholesale’ rather than ‘retail’ rates

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3. Protect your capital
Our property-buying scenario gave you some idea of the volatility of the foreign exchange markets.

How can we protect your capital against such an eventuality? We offer you all the financial mechanisms such as ‘stops’, ‘limits’, ‘forward contracts’ and ‘forward options’ which corporations use automatically to protect their capital. We’ll illustrate how they work with straightforward examples in a moment, but if you want to remind yourself how they work in theory, just click back to An ABC of trading in the introductory pages.

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4. Buying a property outright: how do you deal with us?
You can register with us and then talk to one of our property specialists. Tell them about the property you have chosen, the price, the currency you will be dealing in and the date by which you must complete the transaction. Our dealer will give you an indication of the best rate you can hope for between the day of your conversation and the settlement deadline, assuming your funds are already available.

The rate a clearing bank would offer you would depend on the size of your individual transaction. £10,000 equals ‘small’ in their eyes and small equals unwelcome. All transactions have the same highly competitive rates regardless of whether you are exchanging £10,000, £1 million or more.

5. Opening an account, placing your order
If you are happy with the rate, you open an account (the formalities are simple, the amount of information required by us is minimal). You’re then ready to place your order.

Let’s say the property you intend to buy is the one valued at €100,000 or £64,516.13 when the Euro stands at 1.55 to £1. You need to decide how much more you would be prepared to spend to secure it just in case sterling takes a dive. Let us say you are happy to pay the asking price, would be delighted to pay less, but wouldn’t pay more than £66,666.67 (€1.50 to £1)

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6. Built-in protection
You will remember we said on our opening pages that foreign currency exchange is a 24-hour business. The working hours of the major markets London, New York and Tokyo overlap one another round the clock. So the trading is done electronically. That’s why we need to know the margins within which you are happy to operate (between €1.55 & €1.50 to £1 for the purposes of this particular story) in case either limit is reached overnight in London. Your dealer will build these margins into your order – a €1.55 limit order and a €1.50 stop – together with the date by which the exchange must be made. First we will explain how the limit order works, and then the stop.

7. Making the most of your time and your money
It may be to your advantage, for one reason or another, to be able to exchange your currency earlier than the absolute deadline. It would certainly be to your advantage if you could obtain the €100,000 for less than £64,516.13 before the deadline.

If the market moves the right way and enables you to buy £50,000 worth of the foreign currency within your time-scale, the limit order will trigger the deal. On the other hand if your dealer judges that the pound is strengthening steadily and looks likely to enable you to secure the asking price for less than £64,516.13 he will let you know. Then you can cancel the limit order without cost, wait until the very last moment, and take advantage of the situation.

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8. Rigging the safety net: the ‘stop’
On the other hand, if the pound begins to weaken suddenly and unexpectedly against the Euro , the stop mechanism will automatically trigger the deal. The stop is effective twenty-four hours a day and is the most efficient barrier available against sudden and unexpected adverse changes in currency rates.

9. Buying outright: spot the ‘instant’ deal
Most property deals by their nature take a certain amount of time. However, if an opportunity comes ‘out of the blue’ and you have to seize the moment here and now, call currencies direct and we can carry out a spot transaction. As we explained in An ABC of trading, the benchmark for spot transactions is the rate at which one bank will sell to another. The currency is bought in today’s market for cash.

10. Buying properties under development
Buying a property outright is relatively simple. But what happens if you are buying a property that is no more than an architect’s blueprint and a developer’s plan? You will be asked to pay a deposit, and then to make three or four subsequent payments several months apart. You may know precisely when you have to make each payment or you may not. You may know exactly what proportion of the total price you have to pay each time or you may not.

Although the market might move in your favour during the months it will take to conclude the deal, equally it might move in the opposite direction. Unless you take precautions at the outset, you are putting your capital at risk. How can you avoid the gamble?

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11. ‘Forward’ transactions
You arrange with your dealer here at currencies direct to use the mechanism that all big businesses use to protect themselves when exchanging a large sum into a foreign currency: you use what is known as a forward transaction. There are two versions: the fixed forward and the forward option. We’ll show you how each one works.

12. Forward pricing in practice: the ‘fixed forward’
Let’s deal with the fixed forward. This is the mechanism your dealer will suggest if you know in advance the dates on which you need to make your payments, and the amounts in every case.

Let’s say you must pay a deposit of 10 per cent of the price of the property within the next few days; another 40 per cent in 3 months’ time; another 20 per cent six months from now; and the balance at nine months. (We can arrange fixed forward prices over a period of up to twelve months).

You provide your dealer with all the information the percentages of the sum total and the dates – and he or she will be able to offer a price for each of those staged payments. They will be the most competitive fixed forward prices available. To give you an idea of how it might work in practice, the 10 per cent deposit would be exchanged at that day’s ‘spot price’. (Let’s use the Euro as an example once again and call today’s ‘spot price’ €1.55 to the pound). The forward price for the second payment in three months’ time would be something like €1.5440 ; the third payment in six months, perhaps €1.5380 ; and in nine months maybe €1.5320 . These are nothing more than examples. The figures will vary. The good sense behind the principle and the practice does not.

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13. Forward pricing in practice: the ‘forward option’
It’s possible, however, that you know little more than the final price of the property. . You do know you need to pay 15 per cent now, and the developer has promised your house will be ready to move into in eight months’ time.

We can arrange to exchange the 15 per cent on that day’s spot market at the most competitive rate available. We can then arrange a price which will cover all the subsequent payments. The limiting factors are simply the eight-month time period and the sum total of €100,000 at this agreed rate. You will then be free to pay out lumps of currency as and when you need to, at this pre-arranged rate, secure in the knowledge that whatever may happen during eight months to cause the French franc to strengthen, this will not adversely affect you.

14. Forward options and the private client
As we said in our opening pages, mechanisms such as limit orders, stops, fixed forwards, and fixed options are rarely if ever offered by the clearing banks to smaller businesses, let alone to individuals. But you are offered them as a matter of course.

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15. Spot the ‘instant’ deal: buying outright
Most property deals by their nature take a certain amount of time. However, if an opportunity comes ‘out of the blue’ and you have to seize the moment here and now, call currencies direct and we can carry out a spot transaction. The benchmark for spot transactions is the rate at which one bank will sell to another. The currency is bought in today’s market for cash.

16. What happens next?
When we have bought the currency according to your instructions, we fax a currency contract to you. You need to sign this, complete add the details of where you would like the currency to be sent and fax it back to us.

17. How do you settle your account?
You can pay funds to us from overseas by telegraphic transfer. From within the UK we can accept payment by bank transfer (chaps, TT, Bacs), by cheque, by direct debit or in certain cases by debit card. The same applies from outside of the UK- international electronic transfers can apply where ever you are in the world.

18. Who transfers the currency to its destination?
We do: promptly and efficiently by telegraphic transfer according to the instructions you have provided on the fax see ‘What happens next?’.

19. What do you owe us?
The only money you will owe to us for our service is the fixed fee for telegraphically transferring your funds to their destination overseas. The cost for this express service is a fixed fee of £15.

20. How do I start?
SIMPLE:

For amounts of currency over £4,000, $5,000 or €5,000 please just complete the simple, secure form at our currency converter

For your online cash currency converter please click here now for cash deliveries in the UK of less than £4,000, $5,000 or €5,000

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