How Foreign Currency Exchange Affect You?

Foreign Currencies Affect Everything

There are many things we go about life living with that we never pay attention to, even though they have a tremendous impact on our lives. One of those is foreign currencies and foreign exchange rates.

Now don't turn that dial just yet, this isn't going to get all technical on you, this article is about understanding the basics of currency rates because they affect many areas of your life, and in some cases: daily decisions, depending on your lifestyle and/or whether you work online or in a business you sell things to others outside your country.

Many times successful vacations or making it in business can depend upon your realizing how foreign currencies and currency exchange rates must be taken into account for when making decisions.

So don't be concerned about his being one of those articles on the forex, or being a forex trader, the global forex, forex markets, or putting a forex account into place. This isn't about forex markets for the purpose of investing, this is understanding that there are foreign currencies, and no matter where you live, if it's a currency outside your country, it's foreign, and that means if you do anything where you must exchange your currency for another, or you do business with anyone outside of your country, it will have an effect on profits or costs, depending on what it is you're doing.

Vacations and foreign currencies

Let's look at something most of us do: travel to a foreign country. If you take a vacation outside your home country, in most cases you'll be required to exchange your currency for the currency of the country you reside in.

So when you make your plans and how much money you're budgeting, you must take into account the approximate currency exchange rate at the time of your vacation; even up to the day you leave.

This is especially true if you're on a fairly tight budget, as foreign exchange rates will eat into your spending money, or in many cases, add unto it, depending on the current strength of a foreign currency.

So you may need to compensate by having more spendable resources, or you may be able to save money because of the strength of the currency of the country you reside in. 

Foreign Currencies

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Foreign currencies and doing business

If you do business in any way with people or businesses from a foreign country, you'll encounter currency exchange rates. You can experience a disaster based on this alone if you don't understand the effects of the value of currencies from whatever countries you're doing business in.

As a matter of fact, huge companies in many cases perform the best or worst based on their ability to manage currency fluctuations while doing their currency exchange. 

Online Business and foreign exchange rates

Speaking of managing foreign exchange or currency exchange business, with a Internet business, that can be done in a very efficient and easy manner.

All you have to do in the majority of cases is simply opt out of doing business with someone that may reside in a specific country that can have a very volatile currency because the country itself is very volatile.

What this does is allow you to focus on fairly predictable currencies from more stable nations. 

Don't have to be Forex expert

So as you can see, you don't need to be an expert on forex markets or have a forex strategy, learn the forex or have forex training or take a forex course, in order to understand that currency exchanges and currency exchange rates have a major impact on our lives in many different scenarios, and that's a big first step in managing foreign currencies and currency rates.

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Crown Currency Exchange: Foreign Exchange

Crown Currency Exchange, Hayle

On Monday 4^th October 2010, Crown Currency Exchange, based in Hayle, went into liquidation - with over 13,000 customers losing their holiday money without warning.  There were hints something wasn't right when customers didn't receive the currency they expected from 1st October, the previous Friday.  After an agonisingly long weekend of wondering what was going on, it became horrifically clear the following Monday.

£millions lost!

The company had over 40 employees and dealt with members of the public, selling them foreign currency mostly for their honeymoon trips, holidays and even house purchases abroad.

The UK don't use the Euro as a currency, they stayed out of the Euro. This means that holidaymakers going anywhere in the world will need to change their English/British currency from GBP into the currency of the country they're visiting. Mostly this is into US$ or Euros.

An average family, saving up for a "trip of a lifetime", to perhaps Disneyland, Florida, would typically exchange about £2000-3000 into US$ ahead of their trips.

One of the ways Crown Currency Exchange kept the rates low was by not offering credit cards as a way to buy the foreign exchange, instead relying on people paying by cash, cheque and money wired direct from their accounts.

Mostly Crown Currency Exchange had built up a good reputation, many people had used them repeatedly - always getting good deals.

But, with Crown Currency Exchange, one of the ways to get the best rates was to buy currency futures. People were buying currency on fixed future dates at fixed (good) prices. Therefore there was a lot more "cash" in the system and in the business than a company who were trading cash for cash on the day.

The first time people noticed things not quite right was about 1 October, when people started asking in forums if others were having problems. That was a Thursday and by Friday forums were awash with groups of people who were trying to get answers. But there were no answers. The website was down, the phones not answered.

Then, on Monday there was an announcement that the Liquidators had been sent in.

The story's still unravelling as thousands of worried currency buyers are only just waking up to the fact their holiday money isn't arriving.

Photo by: Petr Kratochvil

Money Safe with Crown Currency Exchange?

A lot of people believed their money would be safe. It'd be a nuisance that they now had to find some way to beg/borrow £2000 or so from friends/family at the last minute in order to go on holiday, but they felt a little secure that they'd get the money back.

But it doesn't seem to be the case.

Because of the way people were buying the currency futures, they had no protection from their credit card companies, as they weren't using their cards.

Also, the customer money wasn't ring-fenced into a separate and safe customer account.

Is There FSA Protection for People Who Lost Money?

The Financial Services Authority (FSA) in the UK is there to protect customers. If a bank goes under your savings are protected to up to £50k per institution. The FSA have other similar schemes and organisations are either part of an FSA scheme or not.

Crown Currency Exchange appeared to be registered with the FSA, but on inspection it looks like they registered just to say they intended to ring-fence the money. There was no requirement for them to actually have a separate/safe account until their turnover reached an amount higher than it was.

Crown Currency a Scam?

No. Unless it can be proven, at some future date, that there was wrong-doing going on, it wasn't a scam.

Crown Currency Exchange in Hayle would appear to be a regular, honest business.

Although the Directors had previously owned and run other companies which had also gone out of business.

The true answers come out in time.

So, spare a thought for all those people who had saved for years to go on a trip of a lifetime holiday - only to now find they've lost their money.

Tor FX, Penzance

This is an entirely separate company, owned and run by different people entirely, although there have been direct family links in the past.  You should do your own research on the connection between the two if you're keen to find out.

On 5 October Tor FX published a statement to distance themselves from Crown Currency Exchange.

Help If You Have Lost Money with Crown Currency Exchange

The current most active forum/helpgroup to find out what is going on with Crown Currency is the Moneysavingexpert.com forum, Martin Lewis of MoneysavingExpert fame.

There, cash losers are gathering together stories and facts.

If you have been affected there's help here:

• FACEBOOK GROUP: Join Facebook, then join the group. Template letters to send to your MP.
• Wordpress Blog: Don't want to join Facebook - keep up to date by reading the updated Wordpress blog
• Moneysaving Expert special Crown Currency Exchange Forum.

What affects the currency exchange rates?

What affects the exchange rate?

The foreign exchange market is as volatile and fast moving as any other financial market on the planet, and can seem equally as daunting and risky to predict.

If you have a significant sum of money to transfer however, it's worth knowing that there are certain factors above others that can and do move the markets, so knowing them may stand you in good stead when making your transfer.

You may find this information isn't exactly forthcoming from the foreign exchange desk at your local bank, so besides trawling the internet and attempting to assimilate a broad range of financial data, it may pay to seek the advice of a currency specialist, who would be trained and equipped to understand which data is relevant to the currency you require, and in many circumstances how it may affect which way the exchange rate will move.

Toby Fischer, a currency specialist based in the City of London, gives his top four factors that would have the most significant affect on the movement of the fx market.

Bank of England Rate Decision

Each month the BoE meet to decide on monetary policy, announcing their decisions as to whether the interest rate should be decreased, increased or maintained. With their decision, the BoE Monetary Policy Committee (MPC) attempt to stabilise economic growth and employment, keeping inflation in check by affecting price levels.

The rate decision can strongly affect the exchange rate of the pound; an increase or expectation of one can often strengthen the pound, while a decrease can cause the pound to lose value against other currencies.

It is worth noting that the statement released with the rate decision can have just as strong an influence as the rate itself, as it gives an outlook for the future direction of monetary policy, and any strong sentiment in either direction will often cause the markets to move in anticipation of this.

Details: Released at 12.00pm (GMT) in the first or second week of every month

British Current Account

A report summarizing the flow of goods, services, transfer payments and income to and from the U.K, showing how the U.K economy is performing amongst other countries of the world.

Records are given either a positive or negative value (current account surplus or deficit). Where there is a persistent deficit, the pound may weaken as trade, income and transfer payments lead to more sterling payments being made abroad.

As trade and production figures are known in advance of the actual release of the report, movements are often felt during this time.

It has historically been one of the most important data releases for forecasting long term developments of foreign exchange rates.

Details: Released at 8.30am (GMT) quarterly

http://www.statistics.gov.uk/STATBASE/Product.asp?vlnk=1118

U.K Gross Domestic Product (G.D.P)

Indicates the state of overall economic growth in the U.K. If positive, it may signal an increased demand in the pound and a prompt to increase interest rates to curb inflation. This would have the dual affect of strengthening pound sterling. In the recent UK economic client, investors have moved their money out of sterling as GDP looks to worsen throughout 2008, making sterling an unattractive proposition.

Much of the GDP data is known before the report is released so movements in the market can often be seen beforehand. The data is however significant enough to create further change in the market through upset or confirmation on its release.

Details: Released at 8.30am (GMT) quarterly

http://www.statistics.gov.uk/instantfigures.asp

British Trade Balance

The difference between imports and exports of British goods and services. It gives a valuable insight into how the pound is currently valued, as when there is a trade deficit (when imports exceed exports), more sterling leaves the country than enters it, leading to a depreciation in its value.

The report's effect is often felt beforehand as much of it can be anticipated. It is however another extremely significant piece of data in how it can move the fx market.

Details: Released at 8.30am (GMT) monthly

http://www.statistics.gov.uk/cci/nscl.asp?id=5821

Whilst these have some of the most significant affects on the foreign exchange market, there are many others that can contribute, such as Non EU Trade Balance UK, British Visible Trade Balance, Nationwide Consumer Confidence and British retail sales.

Being able to discuss these with an expert such as a currency broker can save time, confusion, and with some good judgment, a significant amount of money.

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