Currency Exchange Guide
Individuals and companies moving large sums of money abroad can save themselves thousands of New Zealand dollars by avoiding the banks poor foreign exchange rates and service and by using a specialist foreign exchange broker. Thousands of people and thousands of companies use their bank to exchange money between currencies and to make their international payments.
The main reasons that individuals are doing this is because:
They have funds abroad
They work abroad and want to repatriate their overseas earnings back into Australian dollars
They are emigrating from New Zealand
They are buying an overseas property
They are servicing an overseas mortgage
The main reasons that companies are doing this is because:
They are paying overseas suppliers
They are making an investment abroad
They are repatriating overseas earnings
There are four main reasons for using a foreign exchange broker:
1)Save money
The main reason for using a foreign exchange broker as opposed to your bank is that you can save money. Banks levy high hidden charges in the foreign exchange rates that they pass on to their customers. They provide foreign exchange rates that are a lot higher (for New Zealand dollar buyers) or lower (for foreign currency buyers) than the actual "market rate" and they make their money in the "spread" between the actual foreign exchange rate and the foreign exchange rate that they pass on to their customers.
By way of an example, at 12.30pm on Monday 15 December 2008, the Sterling to New Zealand dollar rate was 2.7567. On its website, a bank was offering its customers who wanted to buy New Zealand dollars a foreign exchange rate of 2.6988. At the same time, World First was offering its clients a rate of between 2.7290 - 2.7510, depending on the amount that a client was looking to transfer.
2)Payment fees
Not only are the foreign exchange rates much better when using a specialist broker but many brokers do not charge payment fees to send the money to an overseas bank account. Most banks charge anything up to NZ $40 to make an overseas payment. On top of that, certain foreign exchange brokers cover all the recipient banking fees. This means that the amount you send from New Zealand is the same amount that ends up in the bank account you have nominated to send your funds to. This is particularly important in countries such as Spain where the banks can charge 0.5% to receive money. For example, if you were to send 300,000 Euros to Spain, there is a risk that you will be charged 1,500 Euros in Spain just to receive the money. By using a foreign exchange broker who covers these fees automatically, this risk can be nullified.
3)Forward contracts
Another important area where foreign exchange brokers differentiate their service from the banks is that they offer individuals and companies the ability to fix a foreign exchange rate in advance using a 'forward contract'. Most banks do offer forward contracts to companies but very few offer them to individual customers. The advantage of a forward contract is that it enables individuals and companies to fix the sterling cost in advance for an overseas purchase (a property or a consignment of goods for example). This gives both individuals and companies certainty of what something will cost in the future, therefore giving them peace of mind and an ability to plan and budget more accurately.
4)Service levels
Most foreign exchange brokers are experts in the field of foreign exchange and international payments as that is all they do. This focus on foreign exchange may not result in a particularly interesting conversation over dinner but it will ensure that you are dealing with seasoned professionals when you have to make an overseas payment.
