One of our distinguished private clients shared with us an interesting experience t'other day.
He lives in UAE (Abu Dhabi to be precise).
He was posted there with work and he and his wife upped sticks and relocated there fully for a matter of years. At the time he accepted the post his now wife was his then girlfriend. On their return to the UK they were wed.
Whilst there are a number of topics we could cover relating to the exchange of his salary (he was being paid in USD) and the repatriation of UK earned income (he retained a property in London), this post focusses on something all together more personal.
Although a number of his contacts had jewellers and ring specialists they could have recommended to him, whilst researching channels through which he might acquire an engagement ring for the person he hoped might become his wife, he came to the realisation that gems, in this case diamonds, we not in short supply locally (in the UAE).
For a fraction of the price he might pay were he commissioning someone in London to produce a bespoke ring, he could consult with artisan craftsfolk in Dubai to create something special, unique, made to order and with a whopper of a stone thrown in for good measure.
We are not writing to advocate the view that price is the only focus when considering what to ask one's significant other to wear on 'that finger', but, given he had settled on sourcing said ring locally, in UAE, he needed to exchange either his GBP savings or his USD accumulated salary in to UAE Dirham (AED) to 'pay the man'.
Hence, he was able to call on our services to facilitate not only the swift exchange of currency, but the more competitive exchange of currency too.
His USD earnings were held offshore. This meant he would need to electronically transmit them to us in the UK as US dollar and ask us to exchange them into Dirham for him and send them back to his Abu Dhabi AED account.
To illustrate why this was an appealing solution for our client - and for the sake of the innocent, names and amounts have been augmented for illustrative purposes - our chum would, ordinarily, buy a ring priced in pounds sterling.
This is because this is the currency in which he always mentally did his calculations.
Therefore, not wishing to dip into the rental income accrued in GBP from the letting of his UK flat, he needed to calculate the equivalent US dollar value of the sterling amount he would otherwise have spent - as USD is the currency he earned in.
Furthermore, he needed then to exchange that USD sum in to AED to pay his 'supplier' (if you will).
So, with a GBP budget set at £15,000 we took a look at the market for him.
No wishing to tie our illustration or calculations to a specific time (as you may be reading this some days, weeks or month's after it has been posted), we will suppose that the rate of exchange this client saw online (through the likes of XE.com) was 1.50.
Were he to try and calculate the USD equivalent of this £15,000 using a rate of 1.50 he would have found that, in real terms, the USD sum it equated to was in fact more than would actually have been the case were he physically exchanging GBP for USD.
Remember, he has set his budget in GBP, but wanted to exchange USD into AED to pay whomever he commissioned to produce the piece. There would be no physical exchange between GBP and USD.
The rate he was looking at and hoping to use to arrive at an accurate representation of the USD equivalent was purely useful for calculations, and this is common practise amongst particularly business clients.
When working out how to charge their UK clients (paying them in GBP), many businesses look online at the market rate, divide the foreign currency cost of what they're buying by that sum, to arrive at the GBP cost of the unit.
For the client in question, we are perfectly content that he should use the mid-rate for his estimate as to the USD equivalent of the GBP he wants to spend. Were he a business though, we would have advised them to consult with us as to the actual commercial rate they should use for their conversion.
Furthermore, we would recommend they incorporate a buffer margin into that commercial rate because they need to remember that no cost is fixed necessarily until their customer has paid them the appropriate sum or, at the very least, agreed to buy the item from them.
Using a rate of 1.50 to work out the USD equivalent of the GBP sum he wished to spend, our client found himself with a USD budget of $22,500.
Now, to work out what he had to spend in AED - so, to work out what he could afford to buy - our client would need to exchange that USD sum into AED (Dirham).
With a fixed USD budget, were our client to ask someone to start work on a ring without having his USD in AED already, he might find that, by the time he actually came to pay the supplier, the USD sum he holds buys him fewer, or of course more, AED.
So, our client has a choice.
Leave the price he can afford to pay in AED up to fate (or indeed the markets), or, exchange in advance, thereby cementing the AED amount he has to spend. It is speculating vs certainty...and it is the age old currency dilemma.
Whilst you might think there is a rather simple decision here, you would be surprised to learn that the vast (if not overwhelming) majority of private clients, when faced with a decision like this, opt to wait an see whether the rate will improve.
Arguably, were the rate between USD and AED to move favourably for our client then he would have more AED to spend and might be able to buy and even bigger rock, but, we think that it is always preferable to make sure that you're not going to be paying more than you expected...hence, our recommendation would tend to be for him to exchange well in advance of commissioning a ring and then to negotiate in the local currency.
Our client could pay his ring maker using a credit card, we suppose. So his US bank is debited to the tune of the USD equivalent of the AED cost of the ring.
Alternatively he could simply use his bank to exchange USD to AED.
The reason he used Prime Cap is because, implicit in our proposition is the fact that he will be buying more AED with the USD he holds because our rate of exchange is more favourable.
When pitted against a UK high Street bank we can usually confidently give an improvement of anywhere up to 3.5% - this means his AED spend can/could increase by that amount...as it happens, we did a live 'like for like' comparison against his Emirati bank and found that the improvement was a whopping 6% versus the rate they would have given him.
The rate of exchange between US dollar and UAE Dirham is a stable one - fixed at 3.67250.
For that reason our client didn't have to worry too much about a shift in the rate either for or agains him. That being the case, the overriding issue was the mark up or deduction he might otherwise have faced had he simply used his bank.
With our help he was able increase his AED buying power...we have no doubt his now wife's left hand is grateful for the added weight it now has to bear.
If one piece of information not in your possession can save you money and bring you piece of mind, then, talking to the person who can provide you with that information is not only sensible for necessary to achieve the best result.
We're available for a no obligation discussion on 0203 172 8193.