Know the ins and outs of currencies and remittances

How to take advantage of currency fluctuations when sending money overseas.

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This week started with the British pound sliding to a new seven-week low ahead of UK prime minister Theresa May’s “hard Brexit” speech on exiting the EU single market entirely. But after her plan was delivered on Tuesday the currency enjoyed its best day since October 2008 as concerns over an uncontrolled Brexit diminished on May’s pledge to hold a parliamentary vote on the UK’s EU exit deal. But how does market sentiment affect currencies, and why do currencies change their value against each other? More importantly, how can you take advantage of them?

Let’s start with what a currency fluctuation is. Put simply, currencies have a market “price”, which is their exchange rate. And sometimes – based on economic and political events, the price of a currency changes because the demand fluctuates. Many global currencies are allowed to float freely – in other words change their price, while others are pegged. The UAE dirham, for instance, is pegged to the US dollar at a rate of Dh3.67 for each dollar. So what’s the best option for UAE residents sending money abroad or back home?

Regular sums

Let’s say that you’re based in the UAE and regularly remit small sums out of the country. If the US dollar weakens, it will also weaken the dirham in relation to your home currency. So what’s the best course of action? If you’re regularly remitting small amounts, then stick to your schedule because it’s unlikely a currency fluctuation will make much difference.

Let’s take the example of Anand, an Indian expatriate working in Dubai’s service industry. He sends home 5,000 Indian rupees every month to support his family back home. At current exchange rates, he’d send home around Dh270. And even if the Indian rupee were to fluctuate, Anand could still keep to his commitment by budgeting between Dh260 and Dh280. But here’s a tip, he could save on overhead fees by shopping around. For smaller sums, transfer fees may matter more than the exchange rate on the day.

Cashing in

Now let’s take the opposite scenario. Say you’re based in the UAE and remitting money home. Suddenly, the dirham gains against your home currency – either because the dollar has grown stronger, or because your currency has lost some value. This happened as the Brexit referendum result was declared. The GBP lost over 10 per cent of its value to hit 31-year lows in October 2016 – and then plummeted again this week in the face of Theresa May’s Brexit stance. Both of those occasions would have been ideal for British expatriates to send their money home. So what’s your course of action when your currency falls against the dollar? Remit what you regularly do, but also see if you can transfer something extra to build up a buffer back home while the exchange rate is favourable.

Holding off

Say you’re a power remitter – someone who has savings in dirhams and wants to send that back home. And assume that the dollar and dirham weaken against your home currency. In this instance, chances are you have spare liquidity, and aren’t bound by a strict transfer schedule. It might be worth holding on and timing your transaction to coincide with a better rate at a later date. Many currency fluctuations are temporary, and what goes down will come up. Taking the example of Dave, a corporate lawyer in Dubai who is working towards his mortgage and savings plan back in the UK. Dave doesn’t remit every month. He builds up a chunk of liquidity and sends it in one go. Dave has decided to contribute Dh20,000 to his savings back home. He can probably wait until the exchange rate is in his favour.

Negotiation

And finally, let’s assume you’re a power remitter based in the UAE and your home currency loses ground against the dollar anddirham. This is an excellent opportunity to send large sums of money home, because each dirham will stretch more. In fact, if the amount you’re transferring is large and you have an ongoing relationship with your regular exchange house, you could negotiate a preferential exchange rate. So the general rules of thumb are these: minor fluctuations don’t make a massive difference to smaller remittances, but it’s still better to remit more when rates are favourable and slightly less when they’re not. And always time big savings and investment transfers for when your home currency has weakened against the dollar so that you get more bang for your buck.So the general rules of thumb are these: minor fluctuations don’t make a massive difference to smaller remittances, but it’s still better to remit more when rates are favourable and slightly less when they’re not. And always time big savings and investment transfers for when your home currency has weakened against the dollar so that you get more bang for your buck.

Sudhesh Giriyan is the chief operating officer of Xpress Money.

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