As thrilling as international relocation is, it can come with its irritating quirks. If you’re buying property, for example, you have to get to grips with the minutiae of Portuguese property system. But once it’s done, it’s done. And you can continue enjoying your new life abroad.
It’s a similar scenario for exchanging currencies. There are many hazards you may come across. But once you have reliable help and the right processes in place, you can pretty much forget about it and relax.
Here are five points to consider when exchanging money into euros, along with some guidance on how to solve any the issues.
1. The currency markets
Global pandemics, vaccinations, Brexit, a new US President. What do they all have in common? They all impact foreign exchange.
The world of currency exchange is in a constant state of flux. Movements are often hard to predict and can be hugely consequential. To put things into perspective, GBP has strengthened by 4% against EUR since the beginning of the year.
When you’re living abroad, there are already enough stresses and strains. Having to worry about which way the currency market is going only adds another layer of stress to the process.
It’s advisable that you use foreign exchange specialist. A good one will have insightful knowledge of the markets and will be able to provide you with crucial information to help with your decision making. The best bit? No hidden fees.
2. Exchange rates
When you go on holiday, a poor exchange rate is annoying. When you are living abroad, a poor rate can end up costing you thousands. For a lot of expats, the knee-jerk decision is to carry out their foreign exchange via a bank.
But the problem is banks very rarely offer good exchange rates. And that’s to say nothing of considerable hidden fees that banks add on top. These fees can become so expensive that they can even equate to some of the other costs of living abroad, like a month’s mortgage payment, for instance.
A foreign exchange specialist will usually be able to get you an exchange rate that is closer to the inter-bank rate (the rate that banks exchange money at). With a better exchange rate, you can essentially save money on every transfer.
3. Your time frame
As we mentioned, the currency markets change every minute of every hour of every weekday. This will be pertinent to you if you are planning to make large purchases, where the overall transaction lasts for a long period of time.
Like buying a property, for example. Between the time of you finding the real estate, setting an agreement on the price and actually buying it, there can be huge and crucial movements in the markets.
You can end up paying more than the price you originally agreed upon due to these movements, as the value of your funds is different to what it was months before.
4. Market risk
You never know what’s around the corner. In January 2020, GBP/EUR was up at 1.15. In just a couple of months, it was pushed down to 1.10 due to complications in the Brexit agreement and coronavirus.
This could have been bad news for anybody who was in the middle of a long transaction. Imagine someone had agreed a price on a boat in January when GBP/EUR was at 1.15. But made the purchase when the rate was 1.10. It would have essentially made the purchase considerably more expensive
There’s a way to avoid this risk. A foreign exchange specialist should offer you a forward rate, a way for you to ‘lock in’ a rate of exchange for you over a given period. This method gives you a degree of protection from negative goings on in the markets.
5. Targeting a rate
You may feel that the current exchange rate is not the best you can get. You might think the markets may move in your favour over the coming months, and that’s when you’ll make the transfer.
But this means a lot of effort on your part. You’ll have to be agile, closely monitoring the markets and quickly exchanging currencies when they hit your rate.
Why not leave the work to an expert? A foreign exchange specialist will discuss with you whether your target rate is achievable. If it is, they can provide you with something called a market order.
A market order allows your FX specialist to hold on to your funds, keep an eye on the markets and make the transaction on your behalf once your desired rate materialises. This means you get the desired rate without having to put in any of the effort.
Privalgo is a specialist foreign exchange company. Each year, we help hundreds of expats save money, time and effort with their overseas purchases and international payments. Get in touch today.