Every year, tens of thousands of people move their money across borders, whether it's to buy a property abroad, receive a pension overseas or pay international school fees.
The amount you'll pay or receive will ultimately depend on the exchange rate you're given, and with these changing all the time – sometimes dramatically – it makes sense to do some research into exchange rates. Here is our short guide to the things we think you should know.
Q: What are foreign exchange rates?
A: Exchange rates are the value of one country's currency against another. How they are quoted in the foreign exchange (FX) markets can be a little confusing.
The pound's rate against the Rand is most commonly expressed in terms of Rands per Pound(GBP). Fortunately, when you use our Currency Services the rates are easier to understand. A Rand-GBP rate of 21.23 means that £1 is worth R21.23. A falling rate means you get fewer Rands for your pounds. If you are buying Rands, you therefore want a higher rate so you get more for your money.
Q: What affects exchange rates?
A: Firstly, inflation rates. The higher these are compared with other countries, the lower the exchange rate tends to be. South Africa's inflation rate is by comparison approx 7% higher than the UK. Secondly a stable economy. South Africa economy compared to the UK is not as stable and this affects the exchange rate. A higher inflation rate in the SA means that SA goods increase in price quicker than UK goods. Therefore exports from the SA become less competitive and demand should fall creating less demand for Rands. Traders on the FX markets often anticipate inflation, so if they expect inflation to rise they will tend to sell the currency.
Q: Do movements in interest rates affect the exchange rate?
A: The higher interest rates are relative to other countries, the more attractive it is to deposit money in the UK. The return from savings is better, and so the demand for sterling increases.
As the markets brace themselves for rate cuts, the pound tends to tumble. This is not always the case, however, as a rise in interest rates can lead to a fall in the exchange rate if investors see the rise as a lack of faith in UK growth prospects and move their funds elsewhere.
The pound's recent strength is a result of positive economic data and expectations that the Bank of England will raise interest rates earlier than previously thought.
Q: Any other influencing factors?
A: Things like government debt, the relative strength of other currencies and government intervention can affect the rates.
Q: How quickly can exchange rates change?
A: Rates can change dramatically, and sometimes in a short space of time. Looking back to April 12th 2015, the Rand rate was 17.55 to the Pound, while just one week later, it had gone up to 18.436. So for someone buying a British property worth £200,000, you'd have had to pay R3,5M one week and £3,7M the next. In the space of just seven days, that's a difference of around R200K.
Q: Why not just go to my bank?
A: When you use your bank to make a currency transfer, you will typically get an inferior rate and a lower level of customer service. Currency Services like HiFX can help you transfer your money more quickly and at much better exchange rates.
With online Money Transfer Services so easy to use these days, once you are registered and proved your credentials, you can send money abroad as and when you need to. Login, pick you currency, enter the receiving bank details and trade. Transfer the required amount online and presto you're done.