Question: I have made the decision to purchase a young horse and have him shipped from Germany to California. This is my first foreign horse purchase and I want to be sure I know how everything works. Can you please explain the ins and outs of exchange rates and tell me if there are any hidden fees I need to be aware of when it comes to purchasing and shipping my new horse?
Name withheld by request
Answer: 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 other countries proving to be fertile breeding grounds.
When purchasing a horse overseas, your first major consideration should 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 three 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 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 that 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 that is right for you:
Compliance: Check that the provider is regulated by the proper state or federal regulatory bodies. In the United States, brokers should be registered with the Futures Commission Merchant and regulated by the Commodity Futures Trading Commission. This information can be found on the broker’s website or on the website of the broker’s parent company.
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 it.
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 wildly from day to day. Does your provider offer 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 euros 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 weeks. This works much like a buy-now-pay-later arrangement. Some added costs can be associated with this, but it may make sense to consider this option, especially if the exchange rate is in your favor at the time of booking.
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 rate 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.
Michael Ward is CEO North America and Europe of USForex, an independent foreign exchange firm.
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