Currency exchange is an essential aspect most especially for those who operate and transfer funds internationally. Every bank quotes different exchange rates but unfortunately, some banks charge exorbitantly. On a brighter note, you can negotiate for better forex rates with the banks.
Before we dive into the negotiation tactics, let’s talk about some basics in Forex rates.
What are Forex Rates?
A Foreign exchange rate, also known as FX Rate, is the value of a country’s currency in comparison to that of another country. If the UGX/KES exchange rate is 3.30, it means that it costs a person 3.30 Kenya Shillings to buy 1 Ugandan Shilling. The first currency listed always stands for one unit of that currency; the exchange rate shows how much of the second currency is needed to purchase that one unit of the first.
Parameters of Forex Rate Pricing
- Spot Conversion: This is when two parties agree to buy one currency against selling another currency at an agreed price for settlement on the date of the agreement. Under this kind of forex trading, there is a buy rate (the rate at which a bank buys from the customer), and an ask rate (the rate at which the bank buys from the customer).
- Forward Contracts: These are agreements between two parties to exchange two designated currencies at a specific time in the future. They are used to protect the buyer from fluctuations in currency prices.
Who Determines Forex Rates?
The rates are determined in the foreign exchange market where currency trading goes on 24 hours a day, save for the weekends. The foreign exchange market is an over-the-counter (OTC) market, where trading is done directly between two parties. The participants in a forex market include banks, international corporations, central banks, investment management firms, hedge funds, retail forex brokers, and investors.
How are Forex Rates Determined?
In Spot Conversions, the rate is determined by the supply and demand of currencies. Different banks all over the world buy and sell different currencies to accommodate their customers’ requirements. This creates a supply and demand for foreign currency. If the demand for one currency increases, then the value of that currency will appreciate against other currencies. If the demand drops, then the value depreciates against the other currencies.
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When Should You Negotiate Forex Rates?
- When exchanging large amounts: If you are exchanging large amounts of money, you should negotiate in order not to spend insane amounts on the exchange rate.
- When the exchange rate is extremely high: The sad fact is that very many banks charge extremely high forex rates. Compare the different exchange rates being offered and avoid banks whose rate is extremely high compared to others.
- When you are a frequent customer: If you regularly trade in forex at a particular bank, you can negotiate for better rates on grounds that you will keep coming back to transact there.
How to Negotiate for Better Forex Rates
- Compare Exchange Rates: Make extensive research on what different banks around you are offering in Forex rates. If you know the exchange rates that each bank is offering, you are in a better position to negotiate a better exchange rate.
- Ask for a better rate: Sometimes, negotiation is as easy as “Can you offer me a better exchange rate for my amount?’ You will either get a better rate as a result or a polite refusal of your request.
- Get professional help: You will need help from people who understand the forex market and its dynamics most especially when you are dealing in very large amounts. A professional consultant will put in the extra work needed to compare and negotiate for better deals.
- Loyalty: When you have found a bank with whom you are happy, for as long as they keep you happy, continue to use them for your regular business. Loyalty can turn out to be your best negotiating position. You, however, need to conduct periodic reviews to ensure they are remaining competitive.
You deserve a fair forex rate. Luckily, finding, comparing, or negotiating a better exchange rate is much easier now than it used to be. Go ahead, negotiate for a better rate because you deserve a fair forex rate.