The Cost Of Converting Currency

Here in Central Florida we have been getting a steady flow of international buyer’s (Mostly U.K) that have been purchasing homes in the Orlando area. With most international currencies being very strong against the dollar its no wonder that we are seeing such a huge flow of funds from outside the country. What I found interesting about this flow of money was the cost associated with the exchange rate.

Most of us who have traveled abroad know that when currency is exchanged that there is a fee associated with this exchange. For the average person, this is a cost of traveling and relatively small. But what if you are transferring large amounts of money to purchase a property? This cost now becomes quite a large expense if your not savvy enough to know exchange rates and the process at hand.

Lets say you have a client from the U.K. who need to transfer 100,000 Pounds to Dollars. Quick math would tell us the Dollar is 2 to 1 against the Pound. However all currencies need to go through a broker or bank and they will look at that days exchange rate when converting. Today (November 29,2007) the Dollar is trading at $2.0638 against the Pound. Now a Broker may quote you an exchange rate of $2.0213. The difference is “only” .o425. This sound very small when you think about it but multiply this by 100,000 and you come up with $4250. This is the spread that the broker takes on the exchange. Not such a small amount now….

Now most everyone who is exchanging funds are told that they need to pay an upfront fee (service fee, processing fee) that they believe is the only cost associated with the transfer. Most range around $300-$350 for this size of a transaction. What you don’t know is how much these money brokers are making off the spread. This is where you need to do your homework and make sure that before you make a large currency exchange, know the daily rates and ask questions. No one is denying that a money broker should make a profit but be careful who you work with or you could be losing thousands of dollars.

Before exchanging currencies, shop around. Look for discount brokers who only charge a service fee. Ask to see the currency rates before they exchange rates. By not doing your a little shopping, you could be throwing thousands of dollars away.