The global economy is in a constant state of flux. Every single day $5 trillion worth of foreign exchange is traded, which absolutely dwarfs the value of trading activity on global markets by a long shot.
Geopolitical uncertainty, economic upheaval, and the actions of currency speculators make it difficult to predict currency exchange rates with any degree of accuracy. Of course, this may not resonate with the average individual – but it certainly impacts each and every one of us.
Globalization ensures that forex rates matter. That’s why overseas investors are particularly sensitive about the state of the economy, how they transfer money, and where they invest it.
Case Study: The United Kingdom Post-Brexit
On June 23, 2016, Britons voted to break from the European Union. This historic referendum set into motion a series of events that would ultimately see the GBP degraded to a 31-year low against the greenback.
The vaunted sterling – one of the most respected of the G10 currencies for so many years – had crashed. This has dire consequences for people in the UK seeking to relocate or invest abroad. When the GBP drops from 1.55 to 1.30 against the greenback, it means that each £1 is worth significantly less in USD.
A practical example will elucidate this point further:
If a UK investor has £1 million to invest in the United States, that would have been worth $1.55 million prior to the Brexit referendum….and just $1.3 million after the Brexit referendum. These currency cross exchange rates are not the only consideration to bear in mind when investors seek to take their money and business offshore. There are exchange rate fees, commissions, hidden costs, and other factors they may be forced to comply with.
The volatility in financial markets has spurred the rapid growth of online money transfer services. Banks used to have a monopoly on international money transfers for investors, business people and individuals.
Britons are shifting their money from the mainland to Europe, the US, Canada and beyond, expecting the pound to plunge further as Brexit proceedings move forward. This preemptive investment strategy is based on sound fundamentals. If the City of London witnesses the mass migration of financial services companies to Europe and elsewhere, billions of pounds could be ripped out from the UK economy. This will precipitate a re-balancing of investments all over the world.
Banks Compete with Non-Bank Entities for International Money Transfer Services
Currently, banks are responsible for approximately 80% of all international money transfers. This is somewhat surprising, given that banks are the most expensive option available to clients.
Typically, a UK bank could charge as much is £40 for an international money transfer, with hefty charges slapped on with margin. On a £100,000 international money transfer, banks could skim £5000 off the top.
Various money transfer brokerages and institutions – non-bank entities – are now operating in the space that banks dominated for so long. These organizations charge significantly less than banks, and deliver more of the client’s money quicker and more efficiently.
Tip #1 – Consider Your Options – Don’t Simply Pick Banks by Default
Investors realize that traditional forms of international money transfer – banks – are not the most efficient way to go. It is worth considering the exchange rates, fees, and commissions that banks charge when evaluating the quality of their services against non-bank money transfer services.
It is always advisable to transfer only that which is required, and not everything that you have available. This is because exchange rates are extremely volatile and one big move could disadvantage you tremendously.
Tip #2 – The Timing of Your Transfer Needs to Be Impeccable
International investors are familiar with the volatility of financial markets. When an exchange rate can move up or down at will, it’s important that you lock in the best possible rate on international money transfers.
Unfortunately, banks do not wait for rates to be favorable to their clients – the margin they charge is evidence of that. However non-bank money transfer services may offer a greater degree of latitude by providing a money transfer specialist to a client. This professional will initiate the transfer when the exchange rate is most favorable.
Tip #3 – Be Sure to Shop around with International Money Transfer Sites
You can always get better foreign exchange rates, zero fees and low commissions if you just shop around. It is well-known that UK banks charge on average £25 for international money transfers, banks in Europe charge €30, and banks in Australia, the US or Canada can charge upwards of $50 for the same service.
By using sites like moneytransfercomparison.com, you can conduct comparative shopping on a wide range of providers to see which one best suits your investment needs.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.