Newspaper headlines that the rand has strengthened against a foreign
currency are not necessarily the signal to go out and buy your travellers
cheques.
The rates newspapers quote are not necessarily the rates you will get; the
exchange rate the bank will give you depends on the rate banks are offering
at that precise moment, the amount of currency involved and whether you
want cash, travellers cheques or bank drafts.
In the foreign exchange market the rand fluctuates in value against other
currencies all day, depending both on how much of the currency is bought
and sold and on expectations of how the exchange rate could move.
Willem Reitsma, general manager, international markets at Nedbank, says
that banks` foreign exchange departments provide retail rates for their
branches for amounts under R100 000 every day, based on the rand dollar
exchange rate in the morning. These retail rates, which are the rates
offered to clients, are not adjusted during the day, irrespective of the
actual market movement of the currencies.
The retail price reflects what the dealers think will happen to the
currencies during the course of the day. For example, if they believe the
rand will weaken against the dollar, they will give you a less favourable
rate than the actual morning opening interbank traded rates.
However, for large amounts bank branches can phone their dealing room at
any time to get the up-to-date value of the rand against another currency,
Reitsma says.
Buy and Sell Rates
There is also a difference between buy and sell rates with the buy rate
being lower than the sell rate.
Remember that the buy and sell rates refer to the bank`s buying and selling
rates. So, if you want to purchase dollars for your overseas trip, you
should look at the bank`s ``sell`` rates.
Another point to remember is that commission and sometimes other charges,
such as communication fees, are added on top of the rates depending on the
method of delivering the currency purchased.
Buying Foreign Currency
When you buy foreign currency, you can expect to pay different charges
depending on whether you want hard cash, travellers cheques, or a bank
draft (a cheque in foreign currency) or whether you will be transferring
money overseas by telegraphic transfer (where the money is paid directly
into an overseas bank account). Banks charge widely differing amounts for
the same service so it may pay to shop around.
Telegraphic transfers are the safest and quickest way to send money abroad,
but the money can only be sent to a bank account. Some banks have quite
high charges for this service, but you are getting a secure and rapid
payment.
If you take a bank draft there is the possibility of losing it and also the
loss of interest paid from the time you get the draft to the time it is
deposited in the country in which you are going to stay. Again, you have to
have an account in which to deposit the draft. However, you will probably
pay a little less in bank charges for a draft.
The commission charge for selling foreign bank notes is usually more than
that for telegraphic transfers and drafts because of the high costs for
holding the notes, so it is best to take only a convenient minimum of
foreign currency in this form. There is also the risk of loss or theft to
consider.
Banks also have quite high charges for selling travellers cheques, but
these are a relatively safe and convenient way to carry foreign currency
abroad for a holiday. The important thing is to keep a record as the
cheques are used, and keep that record separate from the cheques so that if
they are lost or stolen, you can usually obtain a refund. Ask your bank or
sales agent for full details of the refund procedure when you buy the
cheques.
Banks are often asked which is the best currency to take when going abroad,
particularly when exchange rates are volatile. The practical answer is, the
currency of the country you are going to.
Even if the currency you are carrying, say, US dollars, is strengthening,
bear in mind that the cost of converting from dollars to local currency, in
say, Switzerland, is likely to be more than any small exchange rate gain.
But if it is a relatively unknown currency such as the Turkish Lira, stick
to US dollars anyway.
Selling Foreign Currency
When selling foreign currency to a bank, the bank will take account of how
the currency is being delivered. If the payment is by an incoming
telegraphic transfer, the amount will be converted at the most favourable
or spot buying rate and there will be only a small handling fee. Spot rates
are the best rates and refer to a rate to be delivered within two business
days time.
Banks have minimum charges which may make small payments by this method
unattractive. However, you will have the funds on your account almost
immediately.
If you receive a bank draft, the bank will credit your account with its
value but use the less favourable ``airmail buying`` exchange rate. The bank
will recover in the exchange rate the interest loss for the period it takes
to have the draft deposited to the account abroad, for example a US dollar
draft to an account in New York. Again, there will be a small handling fee
with a minimum.
Should you have travellers cheques left over from your trip, the bank or
agent that sold them to you will not charge a commission to repurchase
them. But you will receive the airmail buying rate because the cheques must
be sent abroad to the issuing company for credit to the bank`s account.
If you did not spend all your foreign bank notes, your bank will buy them
back but will charge its normal commission for this type of transaction.
The bank will usually also use its ``bank note buying`` rate, which is less
favourable to you than the airmail buying rate because of the extra costs
involved in handling these notes.