As the grains of sand slip steadily through the Brexit hourglass, the UK finds itself staring at an ever-looming 29 March 2019.
With just six weeks to go until the UK is set to leave the EU, there is still uncertainty over whether a deal will be reached in time. We talk to Money Mover about how you can manage your currency risk in an era of uncertainty.
The value of the pound has had a bumpy ride since the referendum. The immediate aftermath of the vote saw it drop to its lowest value against the major currencies in 31 years. It continued to slump a further 7% in 2018 but rallied at the start of this year when it looked as if the government would pull out the stops to prevent a no-deal Brexit; long seen as the worst-case scenario for the pound.
Few of us would want to predict what may happen over the coming weeks but whilst 52% of Britons voted to leave the EU, that does not mean that Britain has closed its doors to the rest of the world.
SMEs – a major driver of the UK economy – will continue to import and export despite currency fluctuations. In fact, the low pound may prove to be very lucrative for the export industry and could well open up new markets and opportunities for UK businesses. And unless Brexit has a dramatic effect on the weather, retirees and holiday makers will continue to search for sunnier climes or off-shore investment properties.
In short, despite the tumult Brexit may bring, the need for international payments will not disappear. With that in mind, here are a few tips to help you manage the uncertainty.
HOW TO MANAGE CURRENCY RISK AT A TIME OF UNCERTAINTY
1. TRANSPARENT EXCHANGE RATES
Currencies are influenced by a number of different factors. Knowing exactly what the exchange rate will be, and factoring in the transfer fees you will need to pay, allows you to budget accordingly and avoid any unexpected costs.
In the currency market, there are buy or sell rates (weighted towards one or the other) and a mid-market rate. The mid-market or ‘interbank’ rate for each currency is the point where supply of a currency equals demand. Banks and foreign exchange providers add transaction fees and include a profit margin by widening the spread between the mid-market rate and the buy and sell rates which they offer to their customers. How far they widen these spreads depends on the value and sophistication of the customer.
Unlike other financial markets, no legislation yet exists obliging currency dealers to disclose their spreads or even the prevailing mid-market exchange rates. In many cases, this can leave a customer paying far more for a foreign currency exchange than might expect if they were fully informed. It is advisable to always check the mid-market rate (published in real-time for Money Mover customers or on sites such as uk.reuters.com or www.bloomberg.com) before entering into a cross-currency transfer.
Money Mover customers receive live market rates provided to us by our payment services providers and counterparties. This rate is typically at or around the mid-market exchange rate for the currencies that you wish to buy and sell. The Money Mover fee that is added to the market rate is all-inclusive and transparent. You will know exactly how much you will be paying at each step of the transaction.
2. FORWARD PAYMENTS
You can reduce your exposure to wildly fluctuating currency rates by locking in an exchange rate for a future date. ‘Forwards’ are payments which are due to settle three working days or more into the future. Forwards are useful if you know you have a purchase or receivable for a fixed amount on a future date, or want to lock in a preferential exchange rate for a conversion you know you will make in the future, such as a salary transfer or revenue repatriation.
You can find out more about forwards by visiting Money Mover including examples on how Forward payments can help you mitigate your exposure to currency fluctuations.
3. MULTI-CURRENCY ACCOUNTS
If you are regularly receiving payments in a foreign currency, banks will convert the amount to your home currency automatically and charge heavily for the service. By setting up multiple currency accounts you can, for example, have Euro payments made into a Euro account and convert the money to your home currency only when needed. Considering using an international payments provider instead of your bank to move money from one currency account to another is likely to save you money by reducing your exchange rate spreads and transaction fees.
4. DUAL INVOICING
If you are regularly purchasing from overseas suppliers, ask for invoices in both currencies, (for example, GBP/EUR). This allows you to see exactly what you are paying in both currencies, you can then make an informed choice as to which currency you will use for payment, reducing overall currency conversion costs. By taking on the currency risk yourself, you will often be able to secure a discount from a supplier.