Needing Foreign Exchange?

Business Insight
09/06/2017

Romeo Radman, Managing Director, at Payments Etc, which deals with Corporate Foreign Exchange and International Payments, talks about some of the options available to those who need to use Foreign Exchange services.

Foreign Exchange or FX trading is the simultaneous buying of one currency and selling of another.

Many of us think of Foreign Exchange as something that only affects us when we go on holiday but as a trading nation foreign exchange rates impinge on every aspect of our day-to-day lives.

Manufacturers, commodity traders, textile manufacturers, the clothing industry, food producers, and energy suppliers, all depend on stable exchange rates for their business projections, pricing and planning.

We are already seeing the influence of exchange rates in rising prices in our supermarkets due to the drop in value of sterling against other currencies as we move towards Brexit, and a period of uncertainty.

While the simplest option when looking to buy foreign currency may appear to be your bank, there are other options, which may be more cost effective and are just as secure.

Companies that deal in foreign exchange offer a number of advantages; they are often able to offer very good rates of exchange due to their buying power, and simply by being more agile are able to better service the requirements of niche clients.

The Financial Conduct Authority regulates such firms in just the same way as your bank so you have all the same reassurances of probity and security of funds.

Mr Radman would always recommend seeking out a company that is registered with the Financial Conduct Authority and is also registered with HMRC for anti-money laundering supervision.

Indeed apart from the beneficial rates and flexibility of approach, the transaction is handled very similarly to the banks, usually by means of a trading platform, with all the details handled very simply by the Foreign Exchange company. However there are also companies on the market that can manage all your foreign payment requirements without the need to use platforms thus further simplifying the overall FX costs and reducing overheads.

We always see the rates of Foreign Exchange being expressed in pairs and just to clarify the way in which exchange rates are expressed:

Currencies are always traded in pairs, with the two currencies being exchanged known as a currency pair. Currencies are represented by three letters the first two letters represent the country, and the third letter the currency, thus US Dollars would be USD. If you are buying US dollars (USD) with Euros (EUR) the transaction would be expressed as EUR/USD = 1.23700.

The currency to the left of the slash ("/") is called the base currency (in this example, the Euro) and the currency on the right is called the quote currency (in this example, the U.S Dollar). This notation means that 1 unit of the base currency (that is, 1 Euro) is equal to 1.23700 U.S Dollars, so you would have to pay 1 Euro for every 1.23700 dollars you wanted to buy.

If selling, the foreign currency exchange rate specifies how many units of the quote currency you get for selling one unit of the base currency, so in this example, you will receive 1.23700 U.S Dollars when you sell 1 Euro.

Brexit and the uncertainties surrounding the snap general election have increased the difficulties inherent in predicting the strength of the pound sterling against other currencies. However, it isn’t just in the UK that the currency markets are in a state of upheaval; recent events in the US and China are disrupting predictions daily. The Trump Bump is starting to slip, while general elections across Europe, attended as they are by possible Eurozone exit predictions, mean that many traders are spreading their risks by means of Forward Contracts, which can mitigate currency fluctuations.

Forward contacts can be provided by most FX providers and banks, and work by means of an agreement that fixes the rate of exchange between two currencies for an agreed term, possibly up to 12 months.

Such arrangements are very beneficial to businesses in their forward planning giving them at least, a clear cost base for negotiations with their suppliers. After all once we enter negotiations with the Eurozone on exiting the union it would be a brave person indeed who would feel confident in making predictions at least in the medium term.

Payments Etc helps businesses of all sizes save money on their corporate foreign exchange and international payments.

https://paymentsetc.co.uk/corporate-foreign-exchange/