Foreign Exchange – Are You Getting Ripped Off?

January 26, 2015 by Andy Crow

Foreign Exchange; Are You Getting Ripped Off?

The Foreign Exchange markets are back making headlines. On January 15th Swiss central bankers decided to “unpeg” their currency against the Euro. It was totally unexpected and caught everyone by surprise. Within minutes there was a 40% appreciation of the Swiss Franc.

If you haven’t booked your skiing trip yet, Switzerland may not be the cheapest place!

The FX Markets have also been making headlines for the wrong reasons, with high street banks charged with market rigging i.e. pushing markets around for their own gain at the expense of their clients.

Although the FX market is one of the biggest financial markets in the world with Trillions being traded daily, it is the least transparent to the man in the street. Indeed, research by YouGov has shown that 80% of senior decision makers in small UK businesses underestimated or did not know how much banks were charging them for foreign currency.

It’s a fact that banks make billions a year form FX transactions with their small clients. How? By applying a large mark up on those deals.

To give a quick example: If you had to pay today €100,000 for goods or materials from the Eurozone, the rate of exchange you would on average get from the banks would be approx. 1.2500 Euros to the Pound. That would cost you £80,000 (100,000 / 1.25). However the “real” rate of exchange (i.e. where the banks trade with each other) is 1.3000. If that same rate was applied to your transaction then it would cost you £76,923.08, a saving of approx. £3,000. They probably charge you transaction fees too! Make a few of these transactions a year and the savings begin to rise significantly.

There are now several alternatives to banks for transferring money overseas offering far better rates of exchange than the banks. The monopoly that your traditional bank has in supplying Foreign Exchange and paying money overseas has been broken.

Chorus Business Advisers can help you through this maze and help you make an informed decision as to where you FX business should be directed. For more info please call 0845 867 1263 or email info@chorusadvisers.co.uk

This article is by Andy Crow at Chorus Business Advisers