British Expats Abroad – Financial Questions

Part 1: Moving my money, foreign exchange rates and bank accounts

What is Foreign Exchange?

The Bank for International Settlements reported that the average daily turnover in the global foreign exchange markets is estimated to be around $3.21 trillion, a growth of approximately 20% since April 2007 and is expected to continue growing.

Foreign exchange, or forex, is exchanging or converting one currency into another, such as Euros into US Dollars. The foreign exchange market comprises all the world’s currencies, bought and sold across local and global markets.

The foreign exchange market rises and falls in response to real-time events. Investors trade when they’re assured that the currency they buy will appreciate in relation to the currency they sell.

What is an Exchange Rate?

An exchange rate is the rate at which currencies are traded in pairs and exchanged against one another. Most currencies are traded against the US dollar (USD) but also against other popular mainstream currencies such as the Euro (EUR), the Japanese Yen (JPY), Sterling (GBP), Swiss francs (CHF), and Australian Dollars (AUD).

Various factors could influence the exchange rate, including domestic, foreign, and international factors.

Geopolitical factors

These include events such as country elections, war, regime change, conflict situations, etc.

The war in Ukraine, the Houthi Missile attacks in the Red Sea, and the conflict between Israel and Hamas have already influenced global markets. The war in Ukraine created a major international grain shortage as Russia blocked grain shipments in the Black Sea. The missile attacks in the Red Sea blocked significant transport routes, forcing cargo ships to take alternate routes, which took longer and cost more. This created a shortage of goods and also pushed up prices.

Economic factors

Economic stability, global inflation, trade agreements, market collapse, market volatility, global supply and demand, natural disasters or global warming causing shortages of goods, economic growth outlooks etc.

Inflation in prominent economies such as the USA, the UK, and Europe significantly impacts countries that are heavily reliant on and closely linked to these mega economies and their currencies. When inflation rises, the reliant countries also see a significant rise in inflation, often causing currency devaluation and loss of spending power. This devaluation affects the exchange rate of the local currency.

It is vital to shop around for the best forex rates before exchanging money.

How do I cost-effectively transfer money between my UK bank account and my foreign bank account?

If you need to exchange money to transfer into your country of residence, look for exchange apps or e-banking apps like Vault. These apps allow you to exchange and keep currency wallets with different denominations at little or no charge. You can easily load money onto these cards from your UK account and then convert and transfer funds globally.

Banks can often charge high fees to exchange currencies. For larger sums, it’s preferable to use a forex service that offers competitive rates lower than most banks and has no hidden fees. Also, look for a service that can lock in forex rates so there are no surprises when your money is converted.

What are the best ways to manage exchange rate fluctuations?

If you are emigrating, buying or selling property or products internationally, it can be challenging to deal with fluctuating exchange rates, especially when large amounts of money are at play. Even a small fluctuation can cost or save you a small fortune.

What causes currency fluctuations?

Currency fluctuations are most commonly caused by inflation, interest rates, a country’s economic outlook and performance and its strengths and weaknesses, to name but a few.

The best way to manage exchange rate fluctuations is to look for a forex service that offers these solutions:

Provides a simple, safe, and reliable way to save money while trading in currency.
Constantly monitors the exchange rates and provides up-to-date news to lock in the best day rate.
Offer forward contracts that let you fix your exchange rate for future transactions so there will be no surprises. This is ideal if you are buying or selling currency for a property.
Charge lower fees than most banks.
A forex broker who offers proactive advice on hedging and risk management who can explain your options and provide solutions to help obtain the best available exchange rates.
A platform that is simple, user-friendly, easily accessed, and where all your transactions are in one place.
A platform that offers levels of security and transparency so that your transactions are safe and secure.

How do I manage currency risk when investing in different countries?

Investing money can be challenging, especially for UK expatriates living abroad. Dealing with different currencies could cause losses if not managed correctly or if one of the currencies loses value.

Specific measures could be taken to mitigate currency risk.

Keep investments diversified across different currencies to mitigate any exchange rate risks.
Use a forward trade to fix an FX rate to avoid devaluation when rates drop.
Invest in funds denominated in the currency of the jurisdiction you reside in.

Navigating the world of global forex, bank accounts, and transfers can be complicated. A financial advisor can recommend the correct platform for your currency exchange and transfer needs.