Foreign Perspectives

Archive for the ‘Finance’ Category

I went for a job interview yesterday which was unusual in that, whilst I felt that I did meet the requirements for the job on the whole, I didn’t fulfil all their essential requirements. So, I shouldn’t have been asked for the interview.

The snag is that, as with many other employers at the moment, these guys basically wrote a wish list rather than a list of requirements that anybody they could expect to recruit would actually possess. Not quite in the same league as one notorious job advert a few years back which had as an essential requirement a minimum of 5 years experience in using a particular version of software that had only been released the year before, but certainly getting there. That wish-list approach is one reason why it’s best to apply for a job that you like the sound of but which you feel you can only do a small fraction of: employers have been known to get a zero response from some job adverts these days as a consequence of that wish-list mentality.

For example, they asked for experience of a product that was written by a company who have since gone bankrupt and which seems to be mainly used in a different continent. I’m guessing that the number of people who could cover that will be quite limited and indeed the acknowledged local expert is returning to Canada later this year.

Other things had an air of inconsistency about them. Things like an essential requirement of experience in a product that is long past its heyday whilst also having a complete knowledge of the latest of technologies.

One question was particularly interesting in that they reckoned that the team would largely be made up of people in their 20s who would be “very sharp and know all the latest software” so how would I deal with that. Actually, chances are that I’d be even more up to date than they are since, as y’all know, I’m in the midst of a university IT course. It’s been a long time since I met anyone who could talk me under the table in terms of computer technology and even then it was a telecoms guy and they don’t count.

Oh well, I guess I better keep at the job applications.

For the most part, the relative valuation of currencies isn’t something that affects day to day life for most people.

After all, outside holidays, how often do you directly buy something from overseas? Even with Internet sales sites as numerous as they are, in reality most people buy from their closest outlet for the simple reason that to do otherwise would add to the shipping costs. Even when that’s not so much the case it needs a major price disparity to make it worthwhile shipping internationally for most products.

However, that all changes when it’s a major transaction such as a house. Which is why we find ourselves wonder just what’s going to happen to the sterling/euro rate over the next six months or so.

Frankly, most ways of predicting the future direction of exchange rates are little more than gambling. However, looking at it historically the rate has been between 1.50€ to about 1.05€ over the last five years and around 1.10€ to 1.25€ over the last year. Perhaps more importantly though is that the Euro is clearly overvalued a lot. For example, the Big Mac Index puts the over-valuation at 30% (ie the 1.50€ from getting on for five year ago is the right one); the problem is that it can take a long time before a currency reaches its correct exchange rate, however one might define that.

So what’s a person to do?

In practice most people do nothing which leaves them wide-open to what can be massive exchange rate differences. For example, that 15% change over the last year might not sound like much but translate that into a house price of, say, 200,000€ and you could be looking at a change of around 30,000€ which isn’t small change obviously.

Second choice is to translate the prices into your own currency at the current rate and build that into the sale contract. A reasonable option for you, if you can convince the other party into running with it. Chances are that in reality this is going to be a non-runner.

Finally, there’s the option of using one of the currency exchange places and fixing the exchange rate in advance. There are a whole lot of options with this route but the principle differences are between committing yourself to buy/sell at the rate quoted and getting an option to buy/sell at that rate. It’s much, much better to run with the option as, of course, the exchange rate could move in your favour. With an option, you can change your mind and exchange at the better rate.

When the Economist mentions something in several different articles it’s a pretty good bet that the something is in big trouble.

Last week they opened with a potted summary of the emergency support fund being set up by the Euro zone governments in an effort to patch up the radically different speeds which they’re running at. Then there was the leader urging leaders to forget about the option of breaking up the Euro and how dire it would be for a time. Finally, there was the briefing going through how it would be done and how difficult it would be to do.

The problem with the emergency fund being explicitly set up is that everyone knows just how much money is in the kitty. That’s sure to prompt some people to stretch that kitty to the limit whether they be speculators or governments wishing that they could just devalue.

Listing the processes necessary to recreate an old currency is frankly just asking for trouble. As they point out, doing so would cause massive upheaval in the financial markets lasting years and knock-on consequences of the real economy in the country doing it internally and through difficulties in trading with other countries during the change-over period. Unfortunately, those countries are already facing years of upheaval and austerity budgets and moreover their country’s finances will be run by un-elected officials from other countries during that period. Wouldn’t the upheaval in recreating their own currencies be worth it for them? At least they’d be able to have a real say in how their budget was run.

One of the major problems they foresee is the logistics of printing the new currency in secrecy. Unfortunately, there is one Euro zone country that doesn’t need to do that. Ireland’s banks already print sterling notes and one, relatively doable, option would be simply for Ireland to revert to their former linked currency explicitly, at least for a while.

So, will it be Ireland that will pull out first? Whoever it is, they seem unlikely to be the last.

Not so long ago there were all kinds of restrictions on transferring money abroad due to currency controls that lots of countries had in place. They’re almost all gone now and it has become more of a natural thing for “ordinary people” to need to transfer money abroad.

Most of the time it’s due to holidays, of course, but an increasing number of us are becoming small scale international jet setters with homes in more than one country and with both of those come a need to transfer money abroad.

Holidays usually involve a different category of currency conversion in that you are on the spot when you need the money, the amounts involved are smaller and you probably don’t have a local bank account. However, whilst the amounts may be smaller individually, added up over the years they will come to quite a hefty sum. Also, many of those who holiday in the same country each year may be considering the purchase of a property there and so have that local account too.

Most people ignore the costs of all those international transactions to their detriment. One friend of mine found that almost 10% of his entire salary was going in such bank charges simply because he was living abroad and using his “home” account in exactly the same way that he always had ie lifting small amounts frequently.

Saving money on those transactions is usually fairly easy. If you don’t want to change your bank, check out exactly how they charge for use of credit, debit and cash cards abroad. You will usually find that debit and cash cards are more economic ways of getting cash than credit cards are in that you won’t be paying interest on the money. However, that’s not to say that they are cheap. Typically a withdrawal of £100 in the local currency will cost you £4 to £5 but note that this includes a fixed transaction charge so withdrawing £20 will cost you around £2 ie 10% whereas £200 would be about £7 ie 3.5%. You can eliminate these charges altogether with some travel money cards.

It’s slightly better if you buy things, usually. Using a typical Mastercard or Visa card will only incur the foreign exchange charge ie buying £100 of goods will cost you £2.75 and that £20 item would be 70p. Therefore you should buy things with the card directly rather than lifting the cash to pay for them.

What about larger amounts ie if you’re living abroad or have a holiday home abroad? Well, if you follow our advice and get one of the better travel money cards you can lift £500 per day which means that it’s quite viable to use that card in conjunction with a local bank account to transfer amounts equivalent to several thousand pounds. You certainly couldn’t buy a house in that way but it’s enough to fund the payments for electicity bills and the like.

If you are talking thousands, then the usual way is to ask your bank to do a SWIFT transfer. This will cost around £25 plus there’s a currency exchange charge (which isn’t widely known). However, that too can be eliminated in some circumstances. For example, if you bank with HSBC then you can do free transfers to an HSBC account elsewhere in the world but the HSBC Premier account that you need to avail of this costs £20/month (unless you have £50,000 or more on deposit with them) so it’s not as useful as it first appears. However, if you are buying in Spain, the Halifax run to a free account which offers free transfers from Halifax UK accounts to Halifax Spain ones. What’s less obvious is that this route gives you a pretty much free way from pounds sterling to euros anywhere in Europe as banks are required to transfer euros at the same level of charges in other European countries as they do domestically ie to get euros in an account in France, you could transfer from the Halifax UK to Halifax Spain and from there to a French bank.

Other options include the use of the specialised money transfer services such as HiFX (there are lots of similar services around).

We signed up again for Fitness First again way back at the start of August when they’d one of their offers running… “sign up for BodyFirst, get three free personal trainer sessions by paying £35 now and you’ll get it refunded after 20 sessions”. Well, that’s what we were told at the time anyway.

It turns out that we should have been given a card to stamp for each of those 20 sessions which presumably lists a couple of extra conditions that we weren’t told about. First, those 20 sessions had to be taken within 8 weeks of signing up. That shouldn’t be a problem as we were attending 4 or 5 times a week so those 20 sessions were completed in late August or possibly early September. Except that 1) we didn’t have that card to get stamped, 2) their computer was down quite a bit towards the end of August so our attendance wasn’t recorded and 3) it’s quite common to get waved through without the membership card getting swiped. Net effect of that was that we have only 16 recorded attendances in the 8 weeks ie they swiped the card just twice a week on average.

Second problem was those “free personal trainer” sessions. It seems that they weren’t optional as, presumably was stated on the card which we didn’t get, not doing them within the 8 weeks means no refund of the £35. On that particular point, we were explicitly told by the membership guy at the time that we could take them at any time so I guess he doesn’t read the contracts that he’s signing people up to.

I’d say at this point that it was important to read all the conditions of a contract with Fitness First but seeing as we weren’t given the contract, we couldn’t do that.