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Optimizing Foreign Exchange Conversion

I would like to find out what other finance executives are doing to optimize their foreign exchange rate conversions when remitting money to pay  overseas vendors or fund overseas subsidiaries. The obvious area for concern would be the wire transfer and remittance charges since these are highly visible on your bank statement, but the exchange rate itself offers far more opportunity for savings. It seems obvious when you have a banking relationship, and US$ money in the bank, to ask that bank to wire payments in Canadian dollars, NT$ or other local currency since it is the easy option.

However recently I have started looking at foreign exchange specialists whose consolidated FX transactions buy them superior rates to those that are typically secured by our bank (unless the bank acheives a superior rate but keeps the change and offers its customers an average rate!)

I was recently approached by Amex who claim they will make the transfer at better rates than my bank, and ACH the funds from my bank account so there is no additional work. They even offered to quote for a few dummy runs on my next transacations so I could get quotes from them and compare to the actual rates I get from our bank. 
Has anyone used Amex or other specialist FX organisations with either favorable or problem experiences. Although this seems low risk I would like to get some feedback from financial users among the Proformative group.

Answers

Riyaz Millwala
Title: Freelance Trainer for Treasury Products
Company: Self Employed
(Freelance Trainer for Treasury Products, Self Employed) |

There are two options one can use for optimizing forex payments / receipts. One is by booking a forward contract and thereby locking in the exchange rate for the payment / receipt date. The other option is buying currency options by paying a premium upfront.

Kurt Kipfer
Title: CFO Emeritus
Company: International Medical Group, Inc.
(CFO Emeritus, International Medical Group, Inc.) |

Simon,
We have been using TravelEx for quite some time. They offer an automated online real-time FX quote/bind application with low transfer costs and competitive exchange rates, although your rates may be individually set based upon your level of FX commitment to them. They can auto-deduct the lumpsum USD equivalent of multiple daily FX transfers from your US source bank account. It has been the best option we have been able to locate so far. AMEX offerings are similar from my understanding. We have test-drove their model but the online capabilities with feedback/reporting from TravelEx works best for us.

I'd be interested in hearing what others are doing in this area.

Topic Expert
Paul Benedetto
Title: CFO, Director of Finance, Consultant
Company: Nextwave Software, Rethink Fabrics
(CFO, Director of Finance, Consultant, Nextwave Software, Rethink Fabrics) |

I actually started with Amex's fx solution a couple weeks ago and extremely happy. Strong customer service and fairly easy web interface. Pricing is MUCH better than what I have been getting at banks. For example, on a Canadian spot I got 0.9449 vs 0.9602 - that is 153 basis points. On top of that there was no 40-50 wire fee AND we get membership points. Finally, funds made it to recipient in 1 business day. Suffice to say, I am hooked! If you want a contact go to: Roderick [dot] L [dot] Youngataexp [dot] com and tell them I referred you.

Jono Tunney
Title: Director
Company: Atlas Risk Advisory LTD
(Director, Atlas Risk Advisory LTD) |

This person is getting ripped off by his bank and it doesn't matter if he is transacting a spot or forward, he will still be getting ripped off. in fact, the forward will allow the bank to make even MORE money off of him due to having to pay a ridiculious price on BOTH the spot price and the forward points. Options will be even worse. I think the question related to transactional payments... not hedging.

Scott Gunn
Title: CFO
Company: In-Transition
(CFO, In-Transition) |

I would like to add that I have used Western Union Business Solutions and they offer a "level of customer service" that I have not gotten from other providers that just sell FX transactions and do not value a relationship, and do not actually offer you a "credit line". Western Union settles your side of the FX transaction before receiving your funds to settle on your end. As has been said you need to really watch your spreads and do not "get lazy in doing this" as they will creep up on you. Also, you may not always want to go with the lowest spreads if a firm is offering you a true relationship in helping you identify and manage FX risk and not just "doing transactions" for you.

Jono Tunney
Title: Director
Company: Atlas Risk Advisory LTD
(Director, Atlas Risk Advisory LTD) |

The wire transfer and remittance charges are a piece of sand on the beach of how bad you get ripped off when trading FX with a bank. If you can do anything about it really depends on the size and frequency of your transacations. If you are doing more than $1m / month in volume, there are options. The smaller you get the less anyone will pay attention to you.

Depending on your relationship with your bank, ask them to get your FX prices BASED ON SPOT FIXING RATES! (e.g. WMR fixing) You can also call your bank to get 'live' pricing.. make sure to ask for 'both side' (i.e. the bid and the offer).. good luck!

Tim Williams
Title: CFO
Company: Private
(CFO, Private) |

What about FX Trading Systems (Platforms)? Are people using online FX systems provided by Banks, FX Service providers, or even just feeding automated trades that requie no manual input or login to an FX Trading System (platform).

Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

I appreciate the input from the Proformative Group.

Like anything else, service providers give you attention when you are worthwhile business, and give you low priority when your business is relatively small compared to their other portfolio customers. Notwithstanding that they can make a small business opportunity worthwhile by charging outrageous fees, our solutions for a better deal are (i)offering the prospect of volume at some future date, (ii) threatening to take our business to a competitor, and (iii) trying to establish a personal relationship with the guy who does the deal.

I wonder whether there is a possibility of trying to organise "Buying Groups" of Proformative members, using the prospect of consolidated business volume to secure discount pricing for members? Maybe this is something that could be sponsored by Proformative. As a small company with limited leverage, I would certainly be interested in securing the benefit of a group discount, especially one from service providers that had been recommended by the collective wisdom of members of this discussion group. Would anyone else be interested?

Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

Simon, that sounds like a very interesting idea. Please count me in and let me know if you get any other uptake on this idea.

Chris Hopkins
Title: Director, US Corporate FX
Company: Westen Union Business Solutions
(Director, US Corporate FX, Westen Union Business Solutions) |

The FX markets are very competitive and corporate and institutional businesses should be getting the services and fair market value on the exchange rates they deserve no matter what the volume, bottom line. There is no excuse for poor customer service from financial service providers. There is simply too much competition in the marketplace with dedicated individuals willing to go the extra mile to earn there customers business.

Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

One of the issues that seems to create a problem with any banking relationship is that its as good as the individual people with whom one is dealing. Every so often one comes across a great banker, whether in FX, loan documentation, or whatever, and then three months later its all changed and you have someone entirely new, and not necessariy any good! I like the relationship theory and its good if it exists and lasts, but at the end of the day, the banks respect volume and the fees they earn from that volume.... and the customers who provide it!

Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

I have been following the comments on this discussion and appreciate the favorable references to Amex. During my research I have also come across a competing organization called Afex.... remarkably similar in name and function, although not a name I have come across before. They claim to be more specialized than Amex, and therefore more focussed, with better pricing.

I was wondering whether anyone has used this organization, and how the experience has compared with Amex or other services.

Topic Expert
Joan Varrone
Title: CFO
Company: Cloud Cruiser
LinkedIn Profile
(CFO, Cloud Cruiser) |

There was a company which would bundle small transactions and was able to provide better rates to each small transaction as they would go to market with a larger transaction size. Does anyone know of a vendor like this?

Joan

(Agent, JKS Solutions, Inc.) |

In past life managing FX risk we were able to set our pricing levels with FX service providers in relation to total volumes or booking forward contracts and drawing them down over time, so that the smaller payments are made under the same rate as the larger trades. This is a relationship issue on some level and if you have other business with an FX provider, if is a bank, then you can push back on your rates. I hope this helps. I am also hoping that someone may have another suggestion around if there exists a company or site that aggregates currency purchases to enable volume purchasing power.

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