Foreign Exchange Is Foreign

Do foreign exchange dealers really provide customer value to warrant their profits? Or are they simply taking advantage of customer

Michael-LobelThis article was written by Michael Lobel from Even Card Ltd. 

At most intersections between consumers and foreign exchange, there is usually confusion, uncertainty, misinformation and obfuscation.

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Despite being a daily topic of conversation starring on TV and in newspapers from early morning till late at night, foreign exchange is a subject that most people find difficult to understand, and with little wonder. If you’re not a trader or an importer-exporter by vocation, how are you supposed to know what’s a mid rate, what’s an interbank rate, a bid and ask, a spread, a mark-up, a trend, a cash rate or what is a future rate?

Why should most people who find it difficult to calculate simple percentages have to calculate foreign exchange fees or mark-ups?

Why should most people who, in their daily lives, find it difficult to calculate simple percentages have to calculate foreign exchange fees or mark-ups levied on their spend or on their international transfers?

Well, they simply don’t, and the financial services companies know it.

Most providers of foreign exchange products and services facilitating their daily transactions just take advantage of the difficulties people have in understanding the jargon and mechanisms operating in this world. Few people, if any, including the very well educated amongst us can calculate the difference between a prevailing mid-market exchange rate of a currency and the exchange rate that is being applied to their transactions at a point in time.

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The majority of facilitators of exchange rate-based financial services usually have access to exchange rates close to the interbank exchange rate, which is similar to buying a product at cost.

Why is it that they should be able to charge a mark-up on an exchange rate which could sometimes (say at an airport) be as much as 15%?

Do they add so much or even any real value or are they taking advantage of one’s ignorance or immediate desperate need?

Do they add so much or even any real value or are they taking advantage of one’s ignorance or immediate desperate need?

Can these money changers or financial facilitators not charge a flat fee for exchanging money or for making an international transfer?  Why is it that the more we spend with them the more money they make? Shouldn’t it be the opposite?

A consumer can understand a simple fixed fee for exchanging money or for making an international transfer, like paying a fixed fee for buying a seat on an airline. But a seat on an airline doesn’t have a “spread” which people don’t understand. So what do the facilitators do? They widen the spread by applying a mark-up on the exchange rate, when they know that most consumers will not understand the real cost of their transactions, definitely not when they transact and usually not even when they later check their bills.

In this global world in which we all live is it not time to make foreign exchange less foreign?

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