14 Questions You Should Ask Before Buying Foreign Currency
If you are buying a one-off small amount of foreign currency, say for your holiday spending, then you will mainly be interested in the exchange rate and fees. You want to get the most foreign currency you can for as little of your domestic currency as possible.
For larger amounts or regular currency transfers you will need to register with a Forex (foreign exchange) company.
What are the currency market trends at the moment?
A good Forex broker will be up to speed with all the financial news and what is affecting specific currency pair values. If the person you ask cannot tell you, then don’t deal with them.
It is also worth checking the website of your potential currency exchange provider as, again, a good one will keep their news feed refreshed and informative and you might even be able to sign up for a regular newsletter.
This information is designed to help you make an informed decision about making a currency exchange transaction.
Is now a good time to exchange my currency?
There is a difference between a financial advisor and a currency broker – a currency broker is not allowed to give advice. They might give you an opinion from their own personal situation, and they can certainly tell you what the current market trends are, but they are not allowed under any circumstances to advise you what to do. So don’t ask this question, you won’t get a straight answer!
What are your transaction fees?
Some companies are fee-free below or above certain levels and others aren’t. Fees should be transparent on any website, quotation or contract.
Are there any other commissions or charges?
Again, these should be transparent but often aren’t so again ask the question. Most likely to try and hide any extras are banks as they have to incorporate high overheads.
Do you have a minimum/maximum transaction amount?
All companies are different so research the internet or call/go in and ask.
As a guideline, for holiday currency-type transactions there is not likely to be a minimum but you might need to pre-order over a certain amount as the Forex shops only keep so much on the premises for security reasons.
Larger currency exchange firms could have anything from £0-5,000 or higher as a minimum but probably no upper limit.
Will you buy back my currency and at what rate?
The rate you buy your holiday currency at is unlikely to be the same as the rate you can sell it back for when you get home.
Ask the question and if you cannot get a direct answer, most High Street bureaux de change display their current ‘sell at’ and ‘buy at’ rates, so whilst the rate might be different when you return home you can get a good idea of the percentage difference.
Also check whether there will be any fees for selling back currency, and if you need to keep your receipt as proof of purchase.
Can I access a dedicated personal broker?
While your information will no doubt be stored on a communal company database, you might not want every Tom, Dick and Harry knowing your personal business. Or your situation might be sensitive or complex and you don’t want to keep repeating the circumstances to a different person every time you call.
So ask if you can be assigned a dedicated broker who will walk you through your foreign exchange transaction step by step, being sympathetic to your particular requirements. You can build a friendly, trusting, professional relationship with your dedicated broker and use them for any future transactions without having to start again from the beginning.
Can I make regular transfers?
A well-established currency firm should be more than capable of managing regular transfers for you. Examples of these transfers could be your pension if you are an expat, children’s tuition fees, sending home your salary if you work offshore, or just your budgeted living expenses.
Check you are happy with the process and exchange rate arrangements before you sign up.
Can I fix an exchange rate, for how long and what are the benefits?
It is possible to secure what is known as a ‘forward contract’ which protects you from exchange rate fluctuation. When the exchange rate for your chosen currency pair hits a level you are comfortable with, you can speak to your broker about securing that rate for future transactions. Generally, a forward contract should last a year but ask the question to be certain.
If you don’t need this now but are likely to require this service in the future, check which foreign exchange companies can facilitate.
If the rate improves in the meantime can I get that rate instead?
The simple answer to that is “no” because you have signed a contract and are bound by that.
Ideally I need to achieve a particular exchange rate - can you help me?
Any currency exchange company worth their salt will be able to monitor your chosen currency pair and alert you if and when the exchange rate hits your chosen level.
What are your compliance procedures?
If you need to register with a currency exchange firm for the purpose of larger exchanges or regular payments, you will almost certainly be asked for your passport or other acceptable form of ID, a proof of address and bank details. Depending upon the monetary value of the transaction you may also need to complete a due diligence form. Whilst this can seem annoying at the time, these procedures are in place to protect you and also help the Forex company sieve out fraudsters.
How safe is my money with you?
Imagine a client’s money has been stored in the Forex company’s sole bank account. In the event of a banking crisis or legal action, for example, the client’s money could all be lost.
Segregated accounts keep client and company money completely separate to avoid such a scenario and protect what is yours, so ask if this is an available benefit.
A foreign exchange company must also adhere to proper regulations, so you should expect them to declare FCA and HMRC authorisation.
How long will the transaction take?
This one really depends on which currency you are transferring.
For your holiday money it should be instant unless you need a large amount (check customs guidelines on the amount you are allowed to carry) or an exotic currency, in which case you may need to pre-order.
In larger transfers via a Forex specialist, oft-exchanged currencies such as GBP, USD, EUR etc. should be fairly rapid, but more exotic currencies could take longer.
Ask the question before you do anything.