How to exchange your dollars for the currency of the seller without breaking the bank
Given the prominence of European-bred horses in dressage competitions, it is quite common these days to purchase a horse from abroad, with not only Germany but the Netherlands proving to be fertile breeding grounds.
When purchasing a horse overseas, your first major consideration will be how to get the money to the seller. This may sound simple enough, but changing currency can get tricky and expensive.
Most people are familiar with wire transfers offered by banks. In today’s era of specialization, traditional banks’ old world model doesn’t always lend itself to the best customer experience or savings.
In a scenario where a horse was purchased in Europe, the seller will probably require that payment be made in euros. But the dollar-to-euro exchange rate quoted you from a query on your favorite search engine is not the rate you would get from a bank.
To boost their profitability, many banks add anywhere from 3 to 10 percent onto the current exchange rate and charge additional wire fees ranging from $15 to $100 or more depending on the institution. Bottom line: Simply transferring the funds through a bank could add thousands to the cost of your horse.
Fortunately, though, there are alternative wire-transfer options, such as through independent, specialized foreign exchange providers, that can save you a significant amount of time and money. These brokers are not affiliated with a bank but specialize in wire transfers to countries across the globe. Since foreign exchange is all these providers do day in and day out, they are experts and they work to find their customers the best exchange rates possible. Depending on the purchase price, customers can save thousands, even tens of thousands, based solely on having a foreign exchange professional actively negotiate the most advantageous exchange rate on your behalf.
There are many qualified companies to choose from, but make sure to do your homework in advance to ensure you are getting a trustworthy, quality service provider and the best deal. Here are a few tips to help you identify the foreign exchange service provider who’s right for you:
-Compliance: Check that a provider is regulated by the proper state or federal regulatory bodies. At a federal level it’s important that they are registered with Financial Crimes Enforcement Network (“FinCEN”), a bureau of the United States Department of Treasury, as a Money Services Business MSB, as well as, State Banking Department(s) as a Money Transmitter.
-Company History: Make sure your broker is backed by a reliable institution. Look into the history of the company and find out as much as you can about them.
-Referrals/Testimonials: Most companies worth their salt will have existing clients that can vouch for their service. Check online chat rooms as well, keeping in mind that some of these attract only dissatisfied clientele.
-Pricing/Fees: Prices and fees vary widely, and many companies have fees or wire charges added on to the transaction. Ask about these directly. It is your money, and you should get good, clear answers about the final cost and exactly what it is you’re paying for.
-Transferring Funds: How do you give the company your U.S. dollars? Most reputable foreign exchange firms will be able to set up a pre-authorized debit agreement to withdraw funds from your bank account for no charge and only when you book transactions. It will cost you extra to have the funds wired to the provider, which makes account-to-account transfers your best option.
-Transaction Types: Can your provider offer both forward booking (explained below) as well as spot transactions (which happen immediately)? What are the costs involved, if any?
-Service: Any company you choose should have qualified professionals that can keep you up to date on published pricing data, political factors or historical pricing trends that could impact the rate.
-Accessibility: Does your provider operate 24/7? They should, because currencies trade every minute of the day and exchange rates can fluctuate widely from day to day. Does your provider have phone and web access? Sometimes you may prefer to speak to a foreign exchange professional regardless of the time of day. Other times, you may just want to access a website and conduct the transaction yourself.
Once you’ve chosen a qualified provider, two factors will determine how you should proceed with buying the euro. The first factor is pricing. Did you purchase the horse for a specific euro exchange rate at the time of negotiation?
The second is time frame. When do you need to send the euro to the seller and take care of shipping costs? If you have several weeks or months before you must transfer the funds, discuss with the broker the advantages of “forward booking,” or locking in an exchange rate for a purchase you may not make for several days or week. This works much like a buy-now-pay-later arrangement. Once you’re ready to make your purchase, if the dollar has weakened you will see a cost-saving benefit from locking in the exchange back when the dollar was stronger. The foreign exchange professional will be able to walk you through the pros and cons of each scenario.
So, before you embark on your European spending spree, check the numbers carefully. You’d be surprised at how much an independent foreign exchange specialist firm can save you in time and money.