A guide to buying currency

Individuals and companies typically buy foreign currency on a need-only basis, unless they trade in foreign exchange contracts or in international trade. Foreign exchange (Fx) is required for traveling abroad, importing goods, buying overseas property/assets, moving abroad, etc. As Fx rates fluctuate regularly, it is best to buy Fx at favourable rates with no transfer fee and little commission involved. This guide can help you do this:

A guide to buying Fx

When large Fx sums are needed, and the requirement is that they must flow in an organised way, it is best to work with banks. Banks keep tabs on world economies and can guide on which way the rates are headed. The problem with banks is that they do not offer the best rate. Companies which regularly buy and sell Fx must cover currency fluctuation risks by buying or selling forward contracts. For example, if a company buys US $ 500,000 by paying 344,827 Euros (exchange rate assumed at $1.45/Euro), and plan to use it over a period, then they should sell the dollars using a forward contract. If the dollar rate falls over the period, their risk is covered. If the dollar rate rises, they lose the difference, which is worth the risk. Foreign exchange dealers, who are small yet organised, can help individuals and corporate companies buy Fx at cheap rates. Their establishment costs are not high and they are networked with Fx buyers and sellers at any point of time. Travel Fx exchange can be purchased from these dealers. Moving abroad, or buying an asset abroad, may require money to flow from a government-approved channel, and so, it is best to work with bank or financial institutions or large foreign exchange dealers, who can offer better rates than banks. International transfers can be handled by bank transfers. However, banks charge commissions and their exchange rates are not attractive as comparable to organised Fx dealers. Companies which pay regular Fx currency to their international associates can enter into a long-term association with an organised currency dealer or their bank. They must hedge risks by using forward contracts. Besides, they must bargain on commissions and fees as well.

What to use to buy Fx?

Buying Fx using a credit card is very expensive. The rate of exchange is bad, there is a transfer fee and another percentage charge on the amount withdrawn. Using a debit card for Fx transactions is cheaper than using a credit card, though. Fx can be purchased from banks and foreign exchange dealers as well. Buying Fx online is very convenient. The whole idea of buying Fx is to get a good exchange rate, pay no transfer fees and pay very little commissions.