Frequently Asked Questions about Money Transfers
fxcompared.com provides answers to the most common questions asked when dealing with foreign currency transfers
What’s the difference between interbank rates, rates you see in bureaus de change, smaller payment companies and foreign exchange specialists?
When you search online for exchange rate of various currency pairs or refer to business publications, like FT, Wall Street Journal, Guardian, Yahoo Finance you will often be presented with interbank rates, which are based on large volumes of foreign currency sold between banks.
Rates in the foreign exchange bureaus in the high street and airports are the exchange rates for everyday transactions smaller in volume and mainly associated with travel requirements. As the amount is smaller and involves physically handling money, the rates are priced accordingly at much lower rates.
FX Compared can help you to identify and compare for both large and small transactions with exceptional rates from listed FX providers, MTOs and banks. Essentially the more money you are sending the closer and closer you get to the interbank rate.
Does a lower fee always mean that you are getting a better deal?
Not necessarily, the total cost of sending money includes a combination of both the fee AND the exchange rate offered on the day money is sent. A favourable exchange rate can mean that more of your money reaches the recipient. To find the lowest price you will need to compare the exchange rates and fees on the day you plan to send money.
What is an exchange rate margin?
Exchange rate margin is the amount the bank, broker, MTO or exchange bureau adds onto the interbank exchange rate when they quote the rate to the consumer. The bigger the margin, the more each money exchange or money transfer will cost you.
For example, if the interbank exchange rate between British pounds to US dollars is 1.60 dollars to the pound, then the bureau will typically quote the consumer a rate of say 1.70 dollars to the pound. The foreign exchange provider (bank, broker, MTO or exchange bureau) than takes a ‘margin’ of 0.1 dollars on every pound converted. You may say this is very small amount.
Let’s continue with the same example. Assume you are converting 20,000 dollars to pounds to pay for your child’s education in the UK. Margin that the exchange provider is earning is 2000 US dollars, which you are simply paying for exchange provider to convert your money. Hence, if you are converting thousands of dollars, small variations in the foreign exchange margin can significantly affect the cost of your overseas money transfer.
Why and for how long should you keep receipts relating to your money transfer transaction?
Keeping your receipt is vital in case something goes wrong. It is the only way you can prove to a money transfer provider that you sent money and that you or your family members were overcharged. You should keep them safe until you are certain that the person you've sent the money to has received all the money they were expecting in full.
Why and which ID is needed when transferring money abroad?
Basic customer identification is a key element in ensuring that a money transaction is secure, and that it is delivered to its intended recipient. It is also a legal obligation for banks and money transfer operators to accurately identify their new customers to help prevent money laundering and terrorist financing. The person receiving the money may also need to show ID to be able to prove they are the intended receipient.
Most forms of standard photographic ID and official documents proving your address are accepted by banks and money transfer operators, and with many providers you may only need to show your ID on your first visit if you register with them (unless you are sending large sums of money). If you are having problems producing this kind of ID, some organisations may accept a letter of reference from a professional person known to you personally, such as a doctor, solicitor, policeman or woman, judge, counsellor, politician etc. You will need to check first with the organisation you intend to use what forms of ID are acceptable and it is easiest to assume that you will need to show ID each time you want to send money.
After the money has been sent, how long does it usually take to arrive?
This can be from 10 minutes/instant (through MTO's), up to 7 days for electronic transfers from banks and between 1 and 3 days using foreign currency specialists. If you send a money order it is then dependent on the postal service you use to send it. The person sending the money should always ask the provider they are using how long they expect the transfer to take.
What do you do if you do not receive the money?
If you do not receive the money, you need to get in touch with the person who sent it to you and they need to contact the provider they used presenting a receipt for the transaction.
What is an “IBAN” and what are Swift codes, ABA numbers and Sort Codes?
IBAN is an International Bank Account Number, which is being introduced to standardise the identification of bank accounts. It is not a new account number so your existing bank code and account numbers will not be replaced, but additional characters will appear in front of them. The complete identifier will be known as the IBAN. It is intended this will improve the quality of information exchanged between parties involved in European cross border payments and reduce delays that may come from errors.
The SWIFT system is a secure messaging system that allows banks to instruct each other on payments and accounts that they hold with each other. Sometimes it is sufficient to provide a branch code, such as a BSB code in Australia, or Sort code in the UK. In America we need ABA codes, or routing numbers. In Europe we need an IBAN number. These codes allow the FX providers to accurately identify the bank and branch where your money is being sent.
What is a spot contract?
Spot contract is for immediate sale and delivery of a spot currency. If speed is a priority and you need to transfer money fast at the best exchange rates, spot contracts is the right option. Once you verbally or online agree a rate with your chosen currency specialist, your currency can be transferred as soon as you have paid for the contract.
What is a forward contract?
A forward contract is a deal that enables a client to buy foreign currency based on current market rates, for a delivery at a pre-determined date in the future (up to one year ahead).
FX providers offer their clients the ability to take part or full delivery of their currency at an earlier date (Drawdown), or if business circumstances dictate, defer payment and delivery of the currency (Rollover) to a later date. A deposit will be required for each forward deal which acts as security and is deducted from part or full settlement of the trade.
Corporate clients regularly use forward contracts as an important part of hedging their foreign currency needs, protecting their profit margins and identifying cost levels.
What are the most commonly traded currencies in the Forex market?
The US dollar is the most traded currency, being on one side of 86.3% of all transactions. The Euro's share is second at 37%, while that of the Yen is at 16.5%.
The most popular currencies along with their symbols are shown below:
USD - United States Dollar
EUR - Euro Members Euro
JPY - Japan Yen
GBP - Great Britain Pound
CHF - Switzerland Franc
CAD - Canada Dollar
AUD - Australia Dollar
NZD - New Zealand Dollar