Currency Exchange for Money in France
- Regulatory Framework
- Spot and Forward Contracts
- Negotiating the Rate
- Fees and Charges
- Setting up an Account
3. Negotiating the Currency Exchange Rate
Brokers and banks will buy currency at what is called the ‘interbank rate’. This is the wholesale price at which they can buy huge quantities of money. It is the rate that is normally also quoted on the television, unless they otherwise specifically state it is a tourist rate.
Clearly, the larger the bank or broker the easier it is for them to buy closer to the interbank rate, as they buy in larger quantities. This should in theory enable you to get a good rate from them, although you still need to be nimble to negotiate the best possible rate.
Be careful in particular of ‘static rates’ that may be offered on the website of a bank or broker, as the level of the profit for them on such rates is likely to be substantial.
Indeed, these publicly quoted rates may be no more than an ‘indicative rate’. The rate is a meaningless one for the purposes of your exchange, for the only rate that matters is the rate at which you actually do the deal. The bank or broker is not bound by this rate.
Foreign exchange dealers buy at a rate they call the ‘Bid’; they will then sell at what is called the ‘Ask’ or ‘Offer’.
This difference is called the ‘Bid/Ask Spread’, and it is on this difference that banks and brokers make their money.
As a result, it is the size of the Spread that should form the basis of any negotiation you may have with the broker.
Some Spreads may be as high as 4%, but the industry average is about 1%. For six figure amounts you may be able to negotiate approximately 0.5%.
For example, if you were offered a GBP/EUR rate of 1.14 from one provider, you’d receive around €342,000 on a transfer of £300,000. If another currency provider offered you a lower rate of 1.09, the same £300,000 transfer would give you only €327,000. Those few digits in the exchange rate have cost you €15,000 which could be used to make your new life in France that little bit more comfortable.
Of course, you need to be aware of the starting point at which the broker is buying the currency, and whether they are buying at the most competitive rate.
So in order to optimise your dealing, you need to buy from a bank or broker offering the best buy rate and the lowest offer rate.
You then need to consider what the impact of fees and charges might be, if these have not already been taken into account in the rate you have been given.
There probably also needs to be a health warning about 'playing the market'. As we said earlier, the currency exchange business is a competitive one, and there is the risk that if you seek to become too aggressive in your approach with brokers, you will simply lose their interest and they will withdraw from the transaction.
By all means look around, but when you have found a broker with whom you are happy, you may be best advised to use them for your regular business, and conduct an annual review of their rate to ensure they are remaining competitive. Loyalty can often be your best negotiating position.
Next: Fees and Charges
Back: Spot and Forward Rates
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