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The Insider's Guide to Exchange Rates and Transferring Funds

By Darren Richardson, CanadianFOREX

Getting the best deal on your foreign exchange transfer is simple and can mean you are hundreds of dollars better off when you purchase a car, boat, house or other item internationally. Having worked in the industry for many years, I hope to pass on some key points to readers who have a transfer looming.

Which Provider?

The first and most important consideration is the safety of your funds. Therefore, you should use a regulated foreign exchange provider or a bank. Foreign exchange regulations vary from country to country. Some jurisdictions do not regulate non-bank foreign exchange providers, whereas other countries such as Canada, formally regulate providers to ensure they meet certain financial, audit and training standards.

CanadianForex is regulated in Canada by FINTRAC which governs money service businesses, in addition to monitoring terrorist financing and Anti-Money Laundering. Our reporting entity number with FINTRAC is 11503.

The best thing to do when choosing a foreign exchange provider is to compare services and consider such things as:

• Differences in exchange rates, transfer fees and receiving bank fees
• Transparency of prices - is the provider open about their margins?
• Ease of use
• Access to experts who can help you over the phone
• Can you choose the time of conversion yourself?
• Access to hedging tools such as Forward Contracts
• Is the foreign exchange company you are dealing with licensed and regulated?

Comparing Exchange Rates

The second consideration is the exchange rate. In most cases, non-bank providers offer significantly better exchange rates than the banks. There are some traps when comparing exchange rates that are outlined in the next section. The key point is to compare rates at the same time and ensure you are getting a genuine quote.

The Interbank rate is the wholesale rate. No customer will receive this rate but your aim is to get as close to that rate as possible when you book your exchange rate. The exchange rate that is applicable to you is the customer rate. If possible, negotiate a fixed margin or number of 'points' away from the Interbank rate. The difference between these two rates, the margin, is how forex providers make their money.

Many providers display Interbank rates on their websites without making it clear that these are not their customer rates. You should not use posted website rates for comparison purposes unless the providers are willing to be bound by them.

Constantly changing exchange rates make it difficult for consumers to compare exchange rates offered by competing providers. If comparisons are not made within minutes of each other, one provider may look better than the other when it's the fluctuation in the exchange rate that has made the difference. Also, some providers will quote an aggressive rate initially only to quote a far less competitive rate when the time comes to lock in the transfer.

Ask the provider to quote their percentage margin versus the Interbank rate and then compare each provider's margin. Once the margin is agreed then you can monitor the Interbank exchange rates from numerous sites. This strategy puts you in control.

Example: You have agreed on a margin of 0.5% from the Interbank rate. When you are ready to book a rate it's time to check the Interbank rate. If the Interbank rate is CAD/USD 1.0100 then the rate you should receive from your provider should be 1.0100 * 0.9950 = 1.0049 (if the rate is worse, you should ask for an explanation - have a few sites showing spot rates ready so you can hold your ground if necessary).

As a guide, transfers over CAD 100,000 should attract a margin of less than 0.5%. As the amount gets bigger the margin should reduce further. Please contact CanadianForex if that's not what you are receiving!

Predicting Future Exchange Rates

The first rule of foreign exchange is that nobody can accurately predict future exchange rates and consumers should be very wary of dealers who claim they can.

If dealers could predict exchange rates, it begs the question: Why aren't they lying on their yacht somewhere enjoying their trading profits? You will be better served making sure you are getting competitive rates and understanding the options you have to minimize the impact of adverse exchange rate movements on your funds transfer.

Forward Exchange Contracts

The risk of exchange rates moving against you can be managed by entering a Forward Exchange Contract (FEC). An FEC is an obligation that allows you to buy or sell a specified amount of foreign currency at a fixed exchange rate (agreed upfront) for settlement at a specified future date. The Forward Exchange Contract effectively "locks-in" the foreign exchange rate for a future date, eliminating the effect that fluctuations may have on the proceeds of your transfer (for better or for worse).

Forward Contract Example

Assume you like today's exchange rate (or don't want to risk it getting worse) and you will be receiving Canadian Dollar proceeds of your house sale in 60 days which need to be converted to US Dollars:

• Day 1 - Agree on the exchange rate with your forex provider at which you will convert your CAD for US Dollars in 60 days. Once the exchange rate is agreed, you won't benefit from Canadian appreciation but you won't suffer depreciation either.
• Day 60 - Transfer the agreed CAD to your forex provider.
• Day 61 - Forex provider transfers agreed US Dollars to your account.

Forward Contracts give you a known outcome prior to you actually moving funds.

Other Factors

1. Forward exchange rates are slightly different to spot rates depending on how far forward you go. This is due to the difference in interest rates between the two currencies.
2. A deposit is normally required to enter into a Forward contract (usually 5-10% of the amount to be converted).

Fees

Consumers can be charged two fees when they transfer funds. The first, a transfer fee, can be charged by the forex provider or bank at the beginning of the transfer. The second is a receiving bank fee which can be deducted when the funds arrive at the destination account. Savings on the exchange rate usually far outweigh the cost of fees so it's important to look at both the fees and the exchange rate combination when transferring funds.

In Summary

Getting the best deal is as simple as making a few phone calls to banks and regulated providers. Try to negotiate a fixed margin from the Interbank rate with non-bank providers as banks are unlikely to offer this type of agreement. Make sure your provider sticks to the fixed margin when you lock in the deal by ensuring you have a live Interbank rate web page in front of you when you lock in your rate.

If you have any questions or comments about this article, or if you would like to learn more about transferring funds or about foreign exchange, I invite you to call one of our accredited representatives 24-hrs/day, Monday to Friday at 1 800 680 0750 (North America), 1 300 300 424 (Australia), 0845 686 1950 (UK) or at +61 2 8667 8000. For a limited time, you can also visit www.ucanimport.com/show_sponsor.aspx?id=1, fill out the short form and have one of our representatives call you. As a thank you for your interest, we'll pay for your UCanImport Subscription!

Kind regards,

Darren Richardson

The CanadianForex Team
CanadianForex Limited
OZFOREX Pty Ltd

ABN 65 092 375 703
AFS Licence Number 226 484

About CanadianFOREX

CanadianFOREX has helped thousands of new migrants transfer their life savings to new countries. We hope to assist you by eliminating the stress and anxiety that can accompany this most important of financial transactions and save you money at the same time.

CanadianFOREX offers unbeatable exchange rates, maximizing the amount of currency you receive for your Canadian Dollars. We offer corporate rates to individuals, which results in great savings on your international transfers and more money for you in the foreign currency. This can make a big difference when you are buying in a foreign country. To manage foreign exchange risk from market fluctuations, CanadianForex also gives you access to Forward Contracts, Limit and Stop Loss orders.

CanadianFOREX charges no transfer fee on payments and we guarantee that no receiving bank fees are charged where we make a domestic payment. This adds to the savings you will enjoy. Contact us today and

Note from UCanImport - CanadianFOREX has a special offer for UCanImport Subscribers, including preferred corporate foreign exchange rates and an instant cash rebate on your first transaction! Click here for more information.

This information has been prepared without taking into account the investment objectives, financial situation and particular needs of any particular person or company. OzForex makes no recommendations as to the merits of any financial product referred to in this information. Please read our Product Disclosure Statement at www.ozforex.com.au/documents/pds.htm and our Financial Services Guide at www.ozforex.com.au/documents/fsg.htm.

IMPORTANT: This information has been prepared for distribution over the internet and without taking into account the investment objectives, financial situation and particular needs of any particular person. CanadianForex Limited makes no recommendations as to the merits of any financial product referred to in its website, emails or its related websites.