Gone with the wind? FX & currency costs

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Adam Barber
June 27, 2011
This content is from our archive. Some formatting or links may be broken.
This content is from our archive. Some formatting or links may be broken.
Gone with the wind? FX & currency costs

How important is foreign exchange to the Wind Power industry?

The answer to this is very.

Why? Because financial flows may cross currency-borders and whenever a currency-border is crossed, there will be a foreign exchange cost and risk.

In the first of two articles, Nigel Verdon, Chief Executive, FX Capital Group, evaluates how to minimise both your currency costs and currency risks. This first article focuses on reducing your currency costs.

The cross-currency financial flows within the Wind Power industry are typically one, or all, of the following: investment (equity capital), capital expenditure (equity capital and loan capital), interest payments, maintenance costs and general operating costs.

To be able to reduce your currency costs, the first step is to fully understand what these costs are and how to “illuminate them” and interpret the “foreign exchange myths”.

Dispelling Some Foreign Exchange Myths

I am sure every financial director within a Wind Power firm has been pitched ‘Better-than-Bank’ pricing by a currency broker or ‘choice pricing’ by their bank.

Both these statements appear very appealing on first inspection, however before working with a currency partner, financial director's and treasurers should be focusing on understanding the “true cost of currency”. More of this in a minute.

My other favourite is claims of “commission free” and “no payment fees”. Both these statements are fundamentally in-correct as everyone does pay a commission and payment fees, it is just that they are hidden (on purpose). I will show you how to see how much "commission" you really are paying.

How Do I Understand my True Cost of Currency?


To understand your true cost of currency, you need to answer the following questions:



  1. Do you know how much “commission” you currency supplier is making?

  1. How do you know that the rate you are quoted is in line with current market?

  1. Will your pricing remain consistent over a specific period of time for all your trades?

  1. Can you audit past and present trades to validate that you have consistent pricing?




To answer these questions here is a very simple methodology using the example of selling €1 million and buying £ (in FX terms, GBPEUR).

Use a free website to get the current mid-market “SPOT” price (note that this does change by the second)

In this example the mid-market spot price for GBPEUR is 1.1324 - if you used this price, €1m would buy you £883,080 (FYI - you would not get this rate as the mid-market rate is not commercially used)

Ask your currency supplier for their price. They may give you a price of 1.1424 which would buy you £875,350 (the difference in the price is 0.0100 which is termed “100 pips)

This gives you the commission earnt by your current supplier of £7,730 (which is also termed as your true cost of currency)

Are my Currency Costs Reasonable?

So do you know if this is reasonable? as a guideline, the price above is un-reasonable, although I have seen customers being charged £20,000 or more in “commission-free commission”.

A reasonable price would have a mark-up of 0.0040 on the mid-market price (for € and £, although prices do change per currency), earning the currency supplier £3,100.

Are My Currency Costs Consistent?

One of the sales ploys used by brokers and banks in the currency market is to “quote cheap” (e.g. 0.0040 or better) to win your business and then gradually increase the price over time hoping “you do not notice”.

To avoid this, take a note of the mid-market price when you transact and check that the “mark-up” applied is consistent.

Saving Currency Costs

In conclusion, the next time you have a cross-currency investment or payment within your wind power business, you should consider the following to reduce your currency costs:



  1. The mid-market rate at the time you buy currency

  1. The “fair price” for the transaction (currencies and size of transaction)

  1. Always confirm the “mark-up” applied is consistent



Nigel Verdon, Chief Executive, FX Capital Group
Nigel was previously Business Development Director for Dresdner Kleinwort Investment Bank's equity business (cash, derivatives, ECM and proprietary trading), managed the UK retail equities business (no.1 on the London Stock Exchange by consideration) and ran business development for Dresdner's Digital Markets electronic trading business (equities, rates, credit, futures, options, FX and prime broking). Prior to Dresdner he co-founded and sold Evolution Consulting Group Plc., a 120-person consulting firm advising tier-1 investment banks and private equity firms on financial markets technology and strategy.

How important is foreign exchange to the Wind Power industry?

The answer to this is very.

Why? Because financial flows may cross currency-borders and whenever a currency-border is crossed, there will be a foreign exchange cost and risk.

In the first of two articles, Nigel Verdon, Chief Executive, FX Capital Group, evaluates how to minimise both your currency costs and currency risks. This first article focuses on reducing your currency costs.

The cross-currency financial flows within the Wind Power industry are typically one, or all, of the following: investment (equity capital), capital expenditure (equity capital and loan capital), interest payments, maintenance costs and general operating costs.

To be able to reduce your currency costs, the first step is to fully understand what these costs are and how to “illuminate them” and interpret the “foreign exchange myths”.

Dispelling Some Foreign Exchange Myths

I am sure every financial director within a Wind Power firm has been pitched ‘Better-than-Bank’ pricing by a currency broker or ‘choice pricing’ by their bank.

Both these statements appear very appealing on first inspection, however before working with a currency partner, financial director's and treasurers should be focusing on understanding the “true cost of currency”. More of this in a minute.

My other favourite is claims of “commission free” and “no payment fees”. Both these statements are fundamentally in-correct as everyone does pay a commission and payment fees, it is just that they are hidden (on purpose). I will show you how to see how much "commission" you really are paying.

How Do I Understand my True Cost of Currency?


To understand your true cost of currency, you need to answer the following questions:



  1. Do you know how much “commission” you currency supplier is making?

  1. How do you know that the rate you are quoted is in line with current market?

  1. Will your pricing remain consistent over a specific period of time for all your trades?

  1. Can you audit past and present trades to validate that you have consistent pricing?




To answer these questions here is a very simple methodology using the example of selling €1 million and buying £ (in FX terms, GBPEUR).

Use a free website to get the current mid-market “SPOT” price (note that this does change by the second)

In this example the mid-market spot price for GBPEUR is 1.1324 - if you used this price, €1m would buy you £883,080 (FYI - you would not get this rate as the mid-market rate is not commercially used)

Ask your currency supplier for their price. They may give you a price of 1.1424 which would buy you £875,350 (the difference in the price is 0.0100 which is termed “100 pips)

This gives you the commission earnt by your current supplier of £7,730 (which is also termed as your true cost of currency)

Are my Currency Costs Reasonable?

So do you know if this is reasonable? as a guideline, the price above is un-reasonable, although I have seen customers being charged £20,000 or more in “commission-free commission”.

A reasonable price would have a mark-up of 0.0040 on the mid-market price (for € and £, although prices do change per currency), earning the currency supplier £3,100.

Are My Currency Costs Consistent?

One of the sales ploys used by brokers and banks in the currency market is to “quote cheap” (e.g. 0.0040 or better) to win your business and then gradually increase the price over time hoping “you do not notice”.

To avoid this, take a note of the mid-market price when you transact and check that the “mark-up” applied is consistent.

Saving Currency Costs

In conclusion, the next time you have a cross-currency investment or payment within your wind power business, you should consider the following to reduce your currency costs:



  1. The mid-market rate at the time you buy currency

  1. The “fair price” for the transaction (currencies and size of transaction)

  1. Always confirm the “mark-up” applied is consistent



Nigel Verdon, Chief Executive, FX Capital Group
Nigel was previously Business Development Director for Dresdner Kleinwort Investment Bank's equity business (cash, derivatives, ECM and proprietary trading), managed the UK retail equities business (no.1 on the London Stock Exchange by consideration) and ran business development for Dresdner's Digital Markets electronic trading business (equities, rates, credit, futures, options, FX and prime broking). Prior to Dresdner he co-founded and sold Evolution Consulting Group Plc., a 120-person consulting firm advising tier-1 investment banks and private equity firms on financial markets technology and strategy.

How important is foreign exchange to the Wind Power industry?

The answer to this is very.

Why? Because financial flows may cross currency-borders and whenever a currency-border is crossed, there will be a foreign exchange cost and risk.

In the first of two articles, Nigel Verdon, Chief Executive, FX Capital Group, evaluates how to minimise both your currency costs and currency risks. This first article focuses on reducing your currency costs.

The cross-currency financial flows within the Wind Power industry are typically one, or all, of the following: investment (equity capital), capital expenditure (equity capital and loan capital), interest payments, maintenance costs and general operating costs.

To be able to reduce your currency costs, the first step is to fully understand what these costs are and how to “illuminate them” and interpret the “foreign exchange myths”.

Dispelling Some Foreign Exchange Myths

I am sure every financial director within a Wind Power firm has been pitched ‘Better-than-Bank’ pricing by a currency broker or ‘choice pricing’ by their bank.

Both these statements appear very appealing on first inspection, however before working with a currency partner, financial director's and treasurers should be focusing on understanding the “true cost of currency”. More of this in a minute.

My other favourite is claims of “commission free” and “no payment fees”. Both these statements are fundamentally in-correct as everyone does pay a commission and payment fees, it is just that they are hidden (on purpose). I will show you how to see how much "commission" you really are paying.

How Do I Understand my True Cost of Currency?


To understand your true cost of currency, you need to answer the following questions:



  1. Do you know how much “commission” you currency supplier is making?

  1. How do you know that the rate you are quoted is in line with current market?

  1. Will your pricing remain consistent over a specific period of time for all your trades?

  1. Can you audit past and present trades to validate that you have consistent pricing?




To answer these questions here is a very simple methodology using the example of selling €1 million and buying £ (in FX terms, GBPEUR).

Use a free website to get the current mid-market “SPOT” price (note that this does change by the second)

In this example the mid-market spot price for GBPEUR is 1.1324 - if you used this price, €1m would buy you £883,080 (FYI - you would not get this rate as the mid-market rate is not commercially used)

Ask your currency supplier for their price. They may give you a price of 1.1424 which would buy you £875,350 (the difference in the price is 0.0100 which is termed “100 pips)

This gives you the commission earnt by your current supplier of £7,730 (which is also termed as your true cost of currency)

Are my Currency Costs Reasonable?

So do you know if this is reasonable? as a guideline, the price above is un-reasonable, although I have seen customers being charged £20,000 or more in “commission-free commission”.

A reasonable price would have a mark-up of 0.0040 on the mid-market price (for € and £, although prices do change per currency), earning the currency supplier £3,100.

Are My Currency Costs Consistent?

One of the sales ploys used by brokers and banks in the currency market is to “quote cheap” (e.g. 0.0040 or better) to win your business and then gradually increase the price over time hoping “you do not notice”.

To avoid this, take a note of the mid-market price when you transact and check that the “mark-up” applied is consistent.

Saving Currency Costs

In conclusion, the next time you have a cross-currency investment or payment within your wind power business, you should consider the following to reduce your currency costs:



  1. The mid-market rate at the time you buy currency

  1. The “fair price” for the transaction (currencies and size of transaction)

  1. Always confirm the “mark-up” applied is consistent



Nigel Verdon, Chief Executive, FX Capital Group
Nigel was previously Business Development Director for Dresdner Kleinwort Investment Bank's equity business (cash, derivatives, ECM and proprietary trading), managed the UK retail equities business (no.1 on the London Stock Exchange by consideration) and ran business development for Dresdner's Digital Markets electronic trading business (equities, rates, credit, futures, options, FX and prime broking). Prior to Dresdner he co-founded and sold Evolution Consulting Group Plc., a 120-person consulting firm advising tier-1 investment banks and private equity firms on financial markets technology and strategy.

How important is foreign exchange to the Wind Power industry?

The answer to this is very.

Why? Because financial flows may cross currency-borders and whenever a currency-border is crossed, there will be a foreign exchange cost and risk.

In the first of two articles, Nigel Verdon, Chief Executive, FX Capital Group, evaluates how to minimise both your currency costs and currency risks. This first article focuses on reducing your currency costs.

The cross-currency financial flows within the Wind Power industry are typically one, or all, of the following: investment (equity capital), capital expenditure (equity capital and loan capital), interest payments, maintenance costs and general operating costs.

To be able to reduce your currency costs, the first step is to fully understand what these costs are and how to “illuminate them” and interpret the “foreign exchange myths”.

Dispelling Some Foreign Exchange Myths

I am sure every financial director within a Wind Power firm has been pitched ‘Better-than-Bank’ pricing by a currency broker or ‘choice pricing’ by their bank.

Both these statements appear very appealing on first inspection, however before working with a currency partner, financial director's and treasurers should be focusing on understanding the “true cost of currency”. More of this in a minute.

My other favourite is claims of “commission free” and “no payment fees”. Both these statements are fundamentally in-correct as everyone does pay a commission and payment fees, it is just that they are hidden (on purpose). I will show you how to see how much "commission" you really are paying.

How Do I Understand my True Cost of Currency?


To understand your true cost of currency, you need to answer the following questions:



  1. Do you know how much “commission” you currency supplier is making?

  1. How do you know that the rate you are quoted is in line with current market?

  1. Will your pricing remain consistent over a specific period of time for all your trades?

  1. Can you audit past and present trades to validate that you have consistent pricing?




To answer these questions here is a very simple methodology using the example of selling €1 million and buying £ (in FX terms, GBPEUR).

Use a free website to get the current mid-market “SPOT” price (note that this does change by the second)

In this example the mid-market spot price for GBPEUR is 1.1324 - if you used this price, €1m would buy you £883,080 (FYI - you would not get this rate as the mid-market rate is not commercially used)

Ask your currency supplier for their price. They may give you a price of 1.1424 which would buy you £875,350 (the difference in the price is 0.0100 which is termed “100 pips)

This gives you the commission earnt by your current supplier of £7,730 (which is also termed as your true cost of currency)

Are my Currency Costs Reasonable?

So do you know if this is reasonable? as a guideline, the price above is un-reasonable, although I have seen customers being charged £20,000 or more in “commission-free commission”.

A reasonable price would have a mark-up of 0.0040 on the mid-market price (for € and £, although prices do change per currency), earning the currency supplier £3,100.

Are My Currency Costs Consistent?

One of the sales ploys used by brokers and banks in the currency market is to “quote cheap” (e.g. 0.0040 or better) to win your business and then gradually increase the price over time hoping “you do not notice”.

To avoid this, take a note of the mid-market price when you transact and check that the “mark-up” applied is consistent.

Saving Currency Costs

In conclusion, the next time you have a cross-currency investment or payment within your wind power business, you should consider the following to reduce your currency costs:



  1. The mid-market rate at the time you buy currency

  1. The “fair price” for the transaction (currencies and size of transaction)

  1. Always confirm the “mark-up” applied is consistent



Nigel Verdon, Chief Executive, FX Capital Group
Nigel was previously Business Development Director for Dresdner Kleinwort Investment Bank's equity business (cash, derivatives, ECM and proprietary trading), managed the UK retail equities business (no.1 on the London Stock Exchange by consideration) and ran business development for Dresdner's Digital Markets electronic trading business (equities, rates, credit, futures, options, FX and prime broking). Prior to Dresdner he co-founded and sold Evolution Consulting Group Plc., a 120-person consulting firm advising tier-1 investment banks and private equity firms on financial markets technology and strategy.

How important is foreign exchange to the Wind Power industry?

The answer to this is very.

Why? Because financial flows may cross currency-borders and whenever a currency-border is crossed, there will be a foreign exchange cost and risk.

In the first of two articles, Nigel Verdon, Chief Executive, FX Capital Group, evaluates how to minimise both your currency costs and currency risks. This first article focuses on reducing your currency costs.

The cross-currency financial flows within the Wind Power industry are typically one, or all, of the following: investment (equity capital), capital expenditure (equity capital and loan capital), interest payments, maintenance costs and general operating costs.

To be able to reduce your currency costs, the first step is to fully understand what these costs are and how to “illuminate them” and interpret the “foreign exchange myths”.

Dispelling Some Foreign Exchange Myths

I am sure every financial director within a Wind Power firm has been pitched ‘Better-than-Bank’ pricing by a currency broker or ‘choice pricing’ by their bank.

Both these statements appear very appealing on first inspection, however before working with a currency partner, financial director's and treasurers should be focusing on understanding the “true cost of currency”. More of this in a minute.

My other favourite is claims of “commission free” and “no payment fees”. Both these statements are fundamentally in-correct as everyone does pay a commission and payment fees, it is just that they are hidden (on purpose). I will show you how to see how much "commission" you really are paying.

How Do I Understand my True Cost of Currency?


To understand your true cost of currency, you need to answer the following questions:



  1. Do you know how much “commission” you currency supplier is making?

  1. How do you know that the rate you are quoted is in line with current market?

  1. Will your pricing remain consistent over a specific period of time for all your trades?

  1. Can you audit past and present trades to validate that you have consistent pricing?




To answer these questions here is a very simple methodology using the example of selling €1 million and buying £ (in FX terms, GBPEUR).

Use a free website to get the current mid-market “SPOT” price (note that this does change by the second)

In this example the mid-market spot price for GBPEUR is 1.1324 - if you used this price, €1m would buy you £883,080 (FYI - you would not get this rate as the mid-market rate is not commercially used)

Ask your currency supplier for their price. They may give you a price of 1.1424 which would buy you £875,350 (the difference in the price is 0.0100 which is termed “100 pips)

This gives you the commission earnt by your current supplier of £7,730 (which is also termed as your true cost of currency)

Are my Currency Costs Reasonable?

So do you know if this is reasonable? as a guideline, the price above is un-reasonable, although I have seen customers being charged £20,000 or more in “commission-free commission”.

A reasonable price would have a mark-up of 0.0040 on the mid-market price (for € and £, although prices do change per currency), earning the currency supplier £3,100.

Are My Currency Costs Consistent?

One of the sales ploys used by brokers and banks in the currency market is to “quote cheap” (e.g. 0.0040 or better) to win your business and then gradually increase the price over time hoping “you do not notice”.

To avoid this, take a note of the mid-market price when you transact and check that the “mark-up” applied is consistent.

Saving Currency Costs

In conclusion, the next time you have a cross-currency investment or payment within your wind power business, you should consider the following to reduce your currency costs:



  1. The mid-market rate at the time you buy currency

  1. The “fair price” for the transaction (currencies and size of transaction)

  1. Always confirm the “mark-up” applied is consistent



Nigel Verdon, Chief Executive, FX Capital Group
Nigel was previously Business Development Director for Dresdner Kleinwort Investment Bank's equity business (cash, derivatives, ECM and proprietary trading), managed the UK retail equities business (no.1 on the London Stock Exchange by consideration) and ran business development for Dresdner's Digital Markets electronic trading business (equities, rates, credit, futures, options, FX and prime broking). Prior to Dresdner he co-founded and sold Evolution Consulting Group Plc., a 120-person consulting firm advising tier-1 investment banks and private equity firms on financial markets technology and strategy.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.