The foreign exchange rate is the rate at which one currency can be exchanged for another.
Foreign exchange, also referred to as Forex or FX, is always quoted in pairs – Eg, CAD/USD. This rate represents the number of US Dollars one Canadian Dollar can purchase.
Exchange rates are constantly fluctuating due to several economical and political factors. These factors include inflation, industrial production, a country’s balance of trade and geopolitical events. Anything that has an influence on the value of currency can also have an affect on your business.
This is especially true for businesses that import and export goods.
Here are the main ways FX rates can impact your business.
Raw Materials And Supplier Payments
When a currency depreciates, it declines in value. If the currency your business operates in depreciates, this can cause problems obtaining crucial materials. Whenever you contract with an overseas supplier, you open your business to variations in the exchange rate.
For example, In 2007 a British Pound was worth €1.50. This meant that if a British garage wanted to import €1000 worth of engine parts from Germany, it would have cost £666.
In 2009, the value of the Pound fell significantly – one British Pound was worth €1.10. This means the garage would have to spend £909 to buy the same parts from Germany. The garage would then have to charge a higher price for its service to make a profit. This makes the company less competitive with rivals, and less desirable to consumers.
On the flip side, when a currency appreciates, it strengthens in value. This means you can end up paying much less for materials.
For example, a Canadian company might have a shipping agreement with a company in Ireland worth €20,000.
At the minute, €1 is worth $1.51. Therefore, this agreement would cost $30,200. However, should the value of CAD rise by just 2%, €1 would be worth $1.47. The shipping agreement would then end up costing the Canadian company $29,400 – saving them $800.
Foreign Currency Conversion Fees
When conducting international payments, businesses incur charges for converting currency.
These charges occur both when they send and receive money. This is because banks charge a premium on foreign currencies rates.
The rates you see on boards in banks/exchange bureaus are never that day’s true FX market rates. Almost all financial institutions will markup the price so that they can profit.
Many businesses use wire transfers to send money internationally. When sending money to a country not using one of the world’s big currencies, banks will charge substantially higher rates. They will imply it’s difficult to send exotic currency, and that they’re providing great customer service by meeting your needs.
Oftentimes, banks will utilize an intermediary bank in the middle of the transaction. This occurs when banks don’t have connections in the receiving country – funds are helped along by a bank that does. These intermediary banks will add their own charges in addition to the wiring fee.
The US Dollar
The official currency of the United States of America is the world’s most traded currency. Many of the world’s most valuable commodities are priced in US Dollars.
Resources like oil, gold, copper, aluminium and aircraft are all priced in USD. Any business wishing to buy these commodities will have to do so in US Dollars. Even if they don’t use the currency, their suppliers will still have to.
If your country’s currency is weak against USD, you will have to pay higher prices to obtain these resources. Therefore you will have to charge a higher price for your product/service, and reduce your competitiveness.
What Is The Best Way For A Business To Send/Receive Money Internationally?
Wire transfers are a very popular method – but as mentioned above, they’re very expensive for sender and receiver. They also typically take 5 business days, but can take even longer for international payments.
Online transfers are a more modern method of sending money. When you use a good service provider, funds arrive in the recipients account within 1 business day, sometimes instantly.
However, many banks and money service businesses charge high fees to send money online. One business that doesn’t is us here at REMITR. Our service allows users to send and receive money 24/7 in 150 countries worldwide.
REMITR eliminates hidden fees for both the payer and receiver of international payments.
We offer guarantee savings, as we offer the best live exchange rate, no matter what the currency.
We charge a flat fee as low as $5, no matter how much money you send. This a tiny fraction of the fees bank wire fees cost.
You can also use REMITR for receiving payments from your customers in USA and Europe,without having to pay bank fees. Simply sign up for our REMITR Collect service.
Once you register for REMITR Collect, you receive a free REMITR Global Account – receiving payments into this account is just a local ACH payment in the USA and a SEPA payment in Europe. Best of all, receiving payments in the Remitr Global Account is free and withdrawal to your bank account is a flat fee of $5 only!
It’s time to stop paying high bank fees and extortionate exchange rates.
Time is money – save them both by contacting REMITR today.