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International business transfers: Timing your transfer
How to send your transfer at just the right time to take advantage of a high rate.
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.
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When is the best time for my business to transfer money overseas?
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.
Why is it important to get the best exchange rate?
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|
What factors influence exchange rates?
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:
- Interest rates. When a country’s interest rate rises, so does the value of its currency. This is due to the fact that higher rates allow lenders to attract more capital from foreign investors, thereby boosting the value of the local currency.
- Imports and exports. Another factor to look at is a country’s balance of trade. If a country is spending more importing goods than it is making from exports, the value of its currency will be lower. But if exports outweigh imports, the value will tend to rise.
- Inflation. A country with a low rate of inflation will usually see the value of its currency increase, while a country with high inflation can typically expect the value of its currency to fall.
- Political developments. Political instability can cause economic volatility and lead to a drop in the value of a currency. The election of a new government which plans to introduce different economic policies to those of its predecessor can also have an effect.
- Interbank exchange rates. The current interbank or wholesale rates represent the midpoint between the buying and selling points for currency pairs. While this is the rate at which banks buy and sell currency from one another and not something you’ll be able to get for a business transfer, it’s a good reflection of the current value of global currencies.
- Global economic factors. It’s not just local events that can affect exchange rates. Global financial and political developments are capable of affecting economies around the world. For example, the Global Financial Crisis of 2008 had a massive impact on financial markets around the globe, causing the value of some currencies to plummet and the value of others to rise. Other events that have a global impact can also push exchange rates up or down, with one recent example being the effect of the Greek debt crisis on the economies of other countries in the Eurozone throughout 2015.
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.
Bill transfers money to Australia
USD$1 = AUD$1.361
USD$1 = US$1.232
USD needed to send AUD$20,000
Other factors to consider when choosing a transfer provider
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.
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:
- Transfer fees. Transfer fees vary substantially between providers and can make a big difference to whether you get value for your money, so it’s worth shopping around to compare the fees of different providers. Remember also that some companies will waive their transfer fees on large transactions.
- Supported currencies. Make sure any transfer provider you select offers support for all the currencies in which you want to send money overseas.
- Transfer options. Some providers offer a range of transfer options to help you save time and money on international business transfers. These include the following options:
- Recurring payments. You can set up a regular payment on a weekly, biweekly or monthly basis to ensure that you always pay your suppliers on time.
- Forward contracts. You can lock in an attractive exchange rate now for an international transfer that will take place months or even years in the future.
- Limit orders. This feature allows you to specify the exchange rate you want for a particular transfer, and your money is then automatically sent whenever that rate becomes available.
- Transfer time. How long will it take for the money you send to arrive in your recipient’s bank account? If an express transfer option is available, how much extra does it cost?
- Customer support. If you ever have a problem with a transfer and need help, how quickly will you be able to access customer support? Are phone, email and live online chat options available? Is there an online help center?
- Information and guidance. While the banks will merely quote you their latest exchange rate and perform a transfer for you, money transfer providers can provide advice and information on the ins and outs of global exchange rates. Compare the educational tools and resources on offer from each provider to help you get better value for money when sending funds overseas.
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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