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When you run your own business, every single dollar counts. Finding every way you can to save money and to get a better deal can make a big difference in the long run.
So if you need to send a business international money transfer, it’s crucial that you can find the best exchange rate for your transaction.
To do that, you need to understand the factors that affect international exchange rates so that you can lodge your transfer at just the right time to take advantage of a high rate.
The best time for your business to send an international money transfer is simply when the value of the currency you’re looking to transfer to is at its highest. For example, if you’re changing money from US dollars to British pounds and the current exchange rate is USD$1 = GBP£0.72, waiting for the rate to rise to USD$1 = GBP£0.74 will mean you get much better value for your money.
Of course, if you want to transfer money back to America from a foreign country, the flip side applies. By waiting for the value of the US dollar to reach its lowest point, you will get the best deal on your transfer to America.
Because it can save you a whole lot of money. The higher the value of the US dollar relative to the local currency in the country you’re sending money to, the more money you will save.
Even a slight variation in the exchange rate can make a big difference to the total cost of your transfer, especially if you’re sending large amounts of money.
As an example, let’s assume you need to send USD$50,000 to the UK. The table below shows the cost of the transaction if you were to send your international money transfer when the exchange rate was at three different levels:
While a maximum variation of GBP£0.05 might not sound like much on paper, it can make a difference of thousands of pounds to the total cost of your transaction.
As the table below shows, by sending USD$50,000 overseas when USD$1 is worth GBP£0.77 instead of GBP£0.72, you can send an extra GBP£2,500.
|Transfer A||Transfer B||Transfer C|
|Exchange rate||USD$1 = GBP£0.72||USD$1 = GBP£0.74||USD$1 = GBP£0.77|
|Extra money sent (compared to Transfer A)||–||GBP£1,000||GBP£2,500|
Take a look back at the history of the value of the US dollar relative to other currencies and it’s easy to see that exchange rates fluctuate all the time. Changes don’t occur just from month to month or week to week. Rates can experience significant upwards and downwards movements on any given day.
The list of factors that can influence the exchange rate between any two currencies is an extensive one. We’ve included some of the main factors that can drive rates up or down in the list below, but it’s worth remembering that exchange rates reflect the value of two separate currencies, so events and developments in both of those countries can have an impact on the value of their respective national currencies.
Factors that impact exchange rates include the following:
Bill is an American business owner who wants to buy AUD$20,000 worth of equipment from a company based in Australia. As the equipment is not needed urgently, Bill decides to bide his time and wait for the most attractive USD/AUD exchange rate to become available.
The chart below shows the performance of the USD/AUD rate in the year leading up to March 15, 2018.
*Screenshot taken from xe.com, March 15, 2018
As you can see, the best time for Bill to send his transfer was in May 2017, when the exchange rate was USD$1 = AUD$1.361. Other reasonable times to send were in June 2017, when USD$1 = AUD$1.355, and April 2017, when USD$1 = AUD$1.333.
This is a far cry from the exchange rate in January 2018 when the value of USD$1 dropped to AUD$1.232. The table below shows the amount of money Bill could have saved by sending the money when the USD/AUD exchange rate was at its highest as opposed to sending the transfer when the rate was at its lowest.
By sending the money in May when the exchange rate peaked, Bill could have saved a massive USD$1,538.69 and still have sent the same amount of AUD dollars to buy the equipment.
|May 2017||January 2018|
|Exchange rate||USD$1 = AUD$1.361||USD$1 = US$1.232|
|USD needed to send AUD$20,000||USD$14,695.08||USD$16,233.77|
The exchange rate isn’t the only thing you need to consider when sending money overseas. Keep the following factors in mind when comparing money transfer providers:
One final piece of advice for any business that regularly sends money overseas is to consider opening a foreign currency account. This allows you to hold money in another currency and then convert it into US dollars when a favorable exchange rate becomes available.
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