The foreign exchange market is a global decentralized market also known as an over-the-counter market where bank dealers make the market to determine the interbank exchange rate, i.e. the rate the banks use when trading with one another.
The interbank rate is the mid-point between the buy and sell rate for a currency on the open market and is the most accurate rate of exchange at any given time. You can easily check this at any time using the XE Currency Converter.
Unfortunately for most of us, this rate is reserved solely for banks and large financial institutions trading in large amounts of foreign currency.
For retail or business banking customers looking to make smaller international money transfers, a margin (or spread) will be applied to the interbank rate to ensure a profit for the service making the transfer. As a retail banking customer, this margin may be anywhere between ~4-5% of the interbank rate.
The graph below illustrates the rate that a customer may expect to receive from the bank when converting their AUD or NZD to GBP.
What determines whether I receive a competitive rate?
Naturally, when sending money abroad, it’s in your best interests to ensure you keep as much of your money as possible by locking in a favorable rate of exchange.
The exchange rate you receive will be based on a number of factors, including:
- Volume – the amount you are converting
- Currencies exchanged
- Knowledge and awareness
- Frequency of transactions – ongoing or one-off
However, one of the most sure-fire ways to ensure you are receiving a competitive rate is to look at using a money transfer specialist like XE who provides a much sharper rate of exchange than you would otherwise receive from the banks.
Why you should look beyond your bank
XE works closely with our broad network of referring partners to provide their clients with a competitive, secure money transfer solution.
As such, when you choose XE Money Transfer via one of our partners, you will receive preferential rates of exchange that are more competitive than you would receive from other providers.
…It’s not just about the rate
At XE, we pride ourselves on delivering our clients value beyond a great rate, providing a much more comprehensive service than they could expect to receive from the banks.
Exchange rates fluctuate at any given minute and as such our expert team is on hand to be your eyes and ears in the market and advise on how to ensure you lock in the best rate possible.
We also offer a range of products typically not made available to retail banking clients, including Market Orders and Forward Contracts, that will help you reduce your exposure to currency risk.
Whatever your needs or situation, feel free to get in touch with the team at XE to discuss the best approach to your foreign currency needs.
Whether you’ve just started your new life in Expatland or are looking to move back to your country of origin, the need will undoubtedly arise to exchange foreign currency.
Your personal circumstances will determine why you need to exchange currency, the frequency by which you transact and the volume. A currency need will typically arise from:
- Transferring life savings
- Selling and/or buying a property in your country of origin and/or Expatland
- Pensions transfers
- Repatriating income
- Investing in assets domiciled in Expatland
- Sending money home to friends and/or family
So what should you be aware of when converting your currency and sending or receiving cross-border payments?
- Are you really getting the best rate?
You trust your bank with your day-to-day banking needs so surely they must be the best option for your foreign currency and international payments needs? The reality is however, that for retail clients the daily buy/sell rates set by the banks often include a cost to transact plus additional sending and receiving fees.
By doing your research and venturing beyond the banking relationship to an alternative foreign exchange provider like XE Money Transfer, you’ll find that you will be able to take advantage of a much higher rate of exchange and no transfer fees – saving you thousands of dollars on your international money transfers.
- Protect yourself from currency risk on high value transactions
When making high value transactions that occur over a longer period of time, you may want to mitigate currency risk by locking in a favourable rate of exchange.
Currency risk refers to the uncertainties faced by fluctuating exchange rates and can have a significant effect on the outcome you achieve when it comes to executing your currency conversion.
Contrary to what you may think, you are not restricted to simply accepting the spot rate you are given on the day.
At XE, we provide a range of risk management transactions from Market Orders to Forward Exchange Contracts (FECs) and more complex structure options and our team will be able to advise you on the right strategy to ensure you are getting the best rate of exchange and are not left at the mercy of exchange rate movements.