What costs do charities incur when managing their foreign exchange exposures?
Unlike other financial sectors, the foreign exchange market is often opaque, and charities can find it difficult to measure and control all costs being incurred. There are typically two costs involved with international remittances, but there can often be hidden charges too.
- Explicit cost, often referred to as a ‘transaction fee’, is a visible charge that is applied by a currency provider, and acts as a dealing charge.
- Implicit cost, often referred to as ‘margin’ or ‘spread’, is an invisible charge and is defined as the difference between the interbank rate and the exchange rate the charity is given when making a transfer.
Banks and brokers are not required by law to provide transaction cost transparency, which clearly makes it very difficult for charities to have full visibility on costs, thus making it challenging to manage.
How does Charitytransfers.org measure their charity’s increased impact?
This is the amount we’ve helped our charity clients increase their impact value by as of September 2020. We include increases in donation value from savings on foreign income as well as increases in amounts received by foreign beneficiaries achieved from improved pricing.
How does Charitytransfers.org calculate the average cost savings?
This is the average reduction in percentage terms we’ve helped our charity clients as of September 2020.
What is the annual CSR budget?
This is the amount that is granted to us by our parent company, Audere Solutions. Each year, they provide us with a finite CSR budget to cover the administration costs of providing genuinely, pro-bono advisory services to our charity clients.
What is the benefit of involving Charitytransfers.org compared with going direct to a currency provider?
The main goal of Charitytransfers.org is to ensure charities avoid the common pitfalls of bias advice and unfavourable exchange rates offered by banks and brokers, and to ultimately ensure donation values are maximised. We can help your charity add radical transparency to the costs incurred when making international transfers and in turn, increase the operational efficiency of the FX management function. We can negotiate better pricing with existing or new currency providers and ensure charities access fixed, transparent pricing terms to ensure fairness and consistency.
Is it more cost-efficient to send hard currency (USD, GBP, EUR, etc) to my overseas beneficiaries?
Contrary to the widely held belief that better rates of exchange can be achieved within country, charities can often achieve improved rates of exchange using specialist banks and brokers in Europe or the USA. The primary reason is that they have deeper access to liquidity (more supply to meet demand), which naturally narrows the margins charged. The charity can also benefit from increased financial efficiency through centralized control, increased security of funds and increased accuracy of payments.
How do I set my FX budget rates?
An optimal budget rate should be based on realistic assumptions and deliver reliable forecasts to ensure charity performance. Although there isn’t a common standard approach for accurately setting a budget rate and generally charities deploy a variety of different methods to mitigate FX risk, we have developed a proprietary tool that can model several parameters as well as a charity’s risk profile in order to provide a bespoke budget rate risk management tool.
What is an FX policy?
An FX policy is a set of pre-defined protocols that guide a charity to establish an effective currency risk management program or method of minimising the potential impact of adverse exchange rate fluctuations on its funding. Each policy ensures our charity clients have a governance framework and plan that ensures consistency and auditability of the foreign exchange governance.
Is currency hedging speculating with charities’ funding?
Currency hedging is an often-misunderstood tool within the charity sector. Speculation involves trying to make a profit from a market change, whereas charities should use currency hedging to reduce the amount of volatility risk. Often charities use simple currency hedging products to protect funding and it’s very unlikely that a bank or broker will sell a speculative hedging product. When exploring hedging as a concept, be mindful that banks and brokers form part of revenue generating teams and it’s important to rely on internal or external expertise to ensure pricing transparency.