Getting an accurate exchange rate comparison can be more difficult than it sounds. In this two part series, Jim Vrondas from OzForex provides some key insights on how to compare and benchmark the true cost of your international money transfers. For Part One click here.
Comparing FX exchange rates and transfer costs, as we’ve mentioned previously, is problematic. Exchange rates are live and constantly moving, “quoted” rates are always subject to change, fees are not always factored in, and rates may vary for different amounts.
The aim is to get your rate as close as possible to the “interbank rate”, which is usually available only to large institutional investors.
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Live interbank rate
One of the challenges is transparency, in that finding a live interbank rate to compare to is not always that easy. Some FX providers (banks included) make it very difficult to find. However there are many other websites you can use to conduct proper real time benchmarking. Simply Google “live interbank exchange rates” and you will find pages upon pages of sites. Some of the more popular and trusted ones include OANDA, Bloomberg and of course our very own, OzForex.
It is important to note that the interbank rates between websites will vary ever so slightly but, nevertheless, so long as you use the same one to benchmark international money transfer exchange rates across all providers then this will still be a valid exercise.
So the benchmarking exercise could look like this:
a. Find a website that displays real time interbank (wholesale) exchange rates – keep this open and refreshed so you have the latest rates
b. Call or log on to the FX provider’s website
c. Get a live exchange rate for your transfer
d. Keep a record of the interbank rate, FX provider’s rate and total cost difference (including fees) between the two
Once you have done this you can see for yourself the true cost for the transfer. If you annualise this based on your FX turnover for the last (or next 12 months) then you can calculate the total difference to your business. Remember, you will not be able to achieve this interbank rate, but the closer you can get the lower your costs.
Armed with this information, speak to your FX provider and ask them if these are the best rates they can offer you.
Beware “honeymoon rates”
Sometimes the love affair may not last long. Once wooed with the promise of better exchange rates the margin charged over the interbank rate may change over time.
This is why it is most important to review and benchmark your exchange rates over time depending on how frequently you transfer.
Jim Vrondas is chief currency and payment strategist, Asia-Pacific at OzForex, Australia’s leading international money transfer service.