FINANCE
Understanding Currency Exchange: How to Get the Best Deal
B
rad Lemkus, former Managing Director of Hi-Tec Sports in South Africa, was responsible for buying sports shoes in US dollars and selling them in South African rand. He was hugely frustrated by the extent to which
the success or failure of the business was dependant on exchange rates and associated costs. This continued when he moved to the UK to manage the international business for the same company in 1997.
This ultimately played a part in him joining forces with John Booth and
Mike Hampson to develop and launch
Midpoint.com, an online peer to peer foreign exchange and international payments platform which helps businesses and entrepreneurs to save money on currency exchange.
Brad estimates that the footwear businesses in which he was involved,
and had an annual turnover of £20 million, could have saved around £135,000 per year if an organisation such as Midpoint had existed at that time – savings which could have been passed on to customers and helped to boost profits.
Brad believes that the majority of small and medium sized businesses are
not given access to the best foreign exchange rates.. Here he explains the top 5 things to be aware of when buying in one currency and paying in another.
1. Do Some research The Mid-Market/Midpoint exchange rate is the average between the buy
and sell rates. If you had an exact match between someone buying US$1,000 for Sterling and another person selling US$1,000 for Sterling, then the average between the two rates would be the Midpoint rate. This is effectively the "cost" price of the currency.
Normally "Buy" and "sell" foreign exchange rates include overheads and
profit margins that are independently set by foreign exchange providers; their rates can vary a lot and will differ from the mid-market rate.
£10,000 may seem like a large amount of money, enough to command a
good exchange rate. However, in the FX market this is a drop in the ocean. (According to recent research published, the total global FX market is currenty worth 5,3 trillion US Dollars per day) . When you move this amount through your bank, 2.5 -3% is a typical spread that may be applied to your transaction. That’s £300 plus any other costs that would be applied to move the money abroad.
2. Find the best rate by searching on the internet Find out the Midmarket rate and then look for the closest quote to
this rate. Make sure that there are no hidden charges that might reduce your savings.
3. Beware of ‘no commission’ offers When it comes to exchanging currencies, it is not uncommon for individuals to be offered no fees and no commission. However, many people are unaware of the plethora of costs which get layered into a single transaction – and if you are offered ‘no commission’ you will certainly be paying in other ways, primarily through poor exchange rates. It’s more cost effective to pay a clear transaction fee and then get access to the best available rates with no hidden charges than to opt for a ‘no commission’ offer.
4. Evaluate all options As the internet has developed so has an alternative to the traditional
providers of FX. Online peer to peer payment platforms are now making it possible to dramatically reduce the spread and gain access to market rates which are traditionally only available to “big business”.
The new model is beginning to gain momentum. Anyone looking to
transfer money into another currency can now benefit from this next generation of financial services, which leverages a combination of technology advances and networking to deliver real financial benefit. By gaining the midpoint rate, a small business importing £500,000 of goods a year could improve profits by £12,500 to £15,000 per annum or could pass these savings on to customers.
5. Check that your money is safe When transferring money online, it’s important to know that your money
is safe. Make sure you understand where your money is held during the transfer process. Only exchange money with an organisation which is regulated by an appropriate industry body, such as the Financial Conduct Authority (FCA) for UK-based businesses.
Brad Lemkus is Operations Director of Midpoint, which enables businesses and individuals to benefit from a currency exchange matching service, saving them money on all currency exchange transactions. For further details and free registration, visit
www.midpoint.com
Midpoint Holdings Ltd Tel: 0800 211 8620
Bradley Lemkus Operations Director
Email:
info@midpoint.com Web:
www.midpoint.com
JANUARY 2014 • FOOTWEAR TODAY • 39
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