Exchanging Thoughts

Can small firms benefit from deflation?

Deflation is not good – I think we all know that but Small Business has recently written an interesting post about how small firms can actually benefit from it because of reduced costs in many areas. Hmm, I think I need convincing on this one.

According to the latest Business Inflation Guide, the cost of running an SME is now cheaper than it has been in years which is a little bit of good news in these dark times.

Small Business writes:

“According to the research, costs for enterprises fell by 2.9 per cent across the UK in the last quarter of 2008, with the northern regions seeing the greatest decrease of 3.8 per cent.

“The inflation guide, which measures the cost of 20 items commonly purchased by small businesses, shows that there has been an 18.3 per cent decline in fuel prices, an 11.5 per cent cut in raw materials and a 2.8 per cent reduction in insurance.”

This is also emphasised by Moneywise writer Rebecca Atkinson who suggests that continued deflation could actually “boost incomes and confidence”.

However, I should stress that there are only certain groups of people who will benefit, in her post Rebecca goes on to comment:

“Falling prices technically mean your money goes further. But this only applies if you don't have any debt and your income is fixed.”

Deflation is not exactly good news because it occurs when demand is low and markets are badly weakened. Only certain groups will benefit from it and it’s important to remember that there will be far more negative consequences for the rest of us in the long run. All we can do is hope it doesn’t last too long and cause too much damage.

Banks are ripping you off and are keeping it quiet!

My frustration has reached new heights this week. My wine consumption has increased dramatically with the latest facts that have come to my ears, and I’m not sure they even make a big enough soapbox for me to stand on.

You may remember in my previous writings I had a good rant against the lack of transparency in the foreign exchange market. You can’t compare currency prices between the different banks, because banks will only give you a dealing quote if you have your account with them.

In the absence of being able to obtain any meaningful rates comparisons, the SME market is pretty well stuck with using its own bank. It has been estimated that, in the UK alone, there are several hundred thousand SME companies trading overseas and therefore with a currency requirement. They may well not know how much over the odds they are paying.

At 4X we know we can save an average SME some £12,000 per year on its foreign exchange. If we are conservative and say that only applies to a fraction of the market, say 100,000 companies out of the 850,000 or so SME’s, that is a staggering 1.2 BILLION pounds per year! But we’d like to prove that.

Well, being the resourceful types, we decided we would do our own bit of research. We are exhibiting at the FDI Expo at ExCel in London next week, and thought it would be nice to give our visitors a few facts and figures regarding the rates charged by the various banks compared to using 4X.

Knowing that we couldn’t get these ourselves, we contacted a few of our friendly customers to see if they would each ask their respective banks for a Euro rate. Easy enough, you would think, just synchronise the time for the requests and Bob’s your uncle.

Not so! Two of the banks contacted – HSBC and Nat West – wouldn’t give a currency rate EVEN TO THEIR OWN CUSTOMERS!!

HSBC firstly insisted on seeing the funds in the account before they would quote a rate. When told they would be transferred from another account they said they would only give a rate when the customer had made the transfer and was at the point of doing the trade, therefore skilfully removing any possibility of shopping around in advance. Clever.

Nat West, on the other hand, insisted on having the request in writing. Once it had been processed, they said, they would call the customer back with a rate and give him 20 seconds to accept or reject it, again removing the option of shopping around. If the rate was rejected, the customer could try again (and here comes the joke) the next day!

The next day!! One rate a day! Currency rates move up to three times a second. 4X provides more than half a million rates per day. How on earth is a business supposed to get the best deal if it can only request one rate a day? The whole thing is completely scandalous.

Of the others, Barclays would only give an indicative rate, reserving the right to change it at the point of actually doing the deal. The indicative rate was some two cents below the rate 4X was charging to buy 165,000 Euros, and even if they had honoured it, that rate would have cost the customer a whopping £1,784 extra.

Bank of Scotland, to their credit, did give a rate, and it would only have cost £876 extra compared to 4X, which, given the competition, makes them look almost like saints.

What can be done? Well, on the face of it, nothing. The banks have got the SME market right where they want it, and legislation is on their side. There is no obligation to disclose prices, or indeed the profit that the bank has made out of the deal.

The whole situation is completely unacceptable.

There is no reason on earth why the banks can’t be completely transparent with their pricing, except that they don’t want to be. They have the technology to get and display up-to-the second rates, just as we do. But if they did, it would simply expose the huge profits they are making out of the SME market in foreign exchange deals. The aforesaid £1.2 billion would a) make a big dent in their profits, and b) be rather embarrassing.

So, all we can do is start to put pressure on, and bring the whole sorry shambles to light. I am being featured in the Daily Express  soon, and I will make every endeavour to bring price transparency into the arena. Here at 4X we are completely transparent with our dealing rates and are determined to make others be the same.

So that’s it. End of this week’s rant. There will be more, but I must stop now. I just need to pop out and commission a specially large and robust soapbox – I think I may need it.

Exporting businesses could save thousands by simply checking their rates

Last week I decided I needed a new car. So I went down to the local garage, because it’s the closest and most convenient, and they had one in stock. I asked how much it was but they were a bit vague, they just said ‘about £10,000’.

I wanted to check whether I could get it cheaper elsewhere, so I popped into another couple of garages. But they wouldn’t tell me how much their cars were at all unless I opened an account with them. The first one looked OK and it would do the job, so I agreed to buy it.

Yesterday I got my bank statement through the post, and found out they had actually decided to charge me £11,000 for the car. Plus a delivery fee, and a bit extra for luck, all of which I thought was fair enough.

OF COURSE I DIDN’T! That would be utterly ridiculous. Unless money is no object, nobody in their right mind would buy anything unless a) they know what they’re paying for it, and b) they don’t think they can get it significantly cheaper elsewhere.

Nobody likes to think they are paying more than the next person for exactly the same thing. I have been on package holidays which were ruined on day one because someone found out the people on the next table had got theirs £20 cheaper with a free key ring thrown in and spent the rest of the week in sulky resentment.

So why, I ask myself, are businesses, presumably for the most part run by intelligent and commercially-aware individuals, happy to accept treatment similar to that described above from their banks on foreign exchange transactions?

Currency transparency is not there

The answer, I’m afraid, is rather depressing. Because although almost every other commodity in the world is now openly and transparently priced, allowing you to see whose mortgages, insurance or baked beans are the cheapest, the one thing that has slipped through the net is currency.

You can’t go to a competitor bank unless you already have an account there, and a specialist currency provider is also unlikely to quote you a dealing rate unless you are registered as a customer and on the point of doing the deal.

Shockingly currency is completely unregulated

The currency market is completely unregulated. It isn’t covered by the Financial Services Authority, the OFT, the Monopolies Commission (why is there only one of those?) or any other regulatory body.

The net result is that there is absolutely no obligation on anyone, be they banks or specialist currency providers to reveal either the price they are selling at before they do the deal, or how much profit they are making on it. The best you are likely to get is an ‘indicative’ rate – which may appear attractive but is effectively meaningless. It is just what it says, an indication of the price, but may, like my car, bear little resemblance to the price they will actually transact at, and making it extremely difficult to make accurate comparisons.

Here at 4X we support regulation. But even throwing our support behind the proposed 2009 regulation of the currency industry by the FSA doesn’t guarantee that they will go as far as completely opening up on pricing.

Open up pricing

So, we have decided to try to change things from the inside, to put our money where our mouth is and challenge our competitors and the banks to do the same. We have had live dealing rates for individuals on our website for a long time now, and last week we extended this openness to the corporate market.

Just go to www.4xcurrency.com/trial.htm for a free download of our unique dealing software with live tradable rates. No indications, nothing hidden. What you see is what you get and you are quite at liberty to shop around and compare. In fact we think you should, but we doubt whether anyone else will offer the same.

The foreign exchange market is worth absolutely billions. It’s no surprise that the banks and other providers don’t want you to know what they are charging. Profits would slip overnight and we know they can’t afford that.

In the meantime, you’ll be pleased to know I have bought a new car (Nissan Micra - similar to left). I found it on the internet, it was a bargain, and we are both very happy.

Technorati Tags: 4X Currency Corporation,Currency regulation,Currency Transparency

Red Red Wine goes to my carpet!

Last Sunday evening turned into rather an expensive one, and all my own doing. I failed to follow my own advice.

It was a quiet night in with a glass of wine and the rerun of ‘Britain’s Got Talent’. However, one clumsy movement involving the TV remote and there was wine all over the carpet. And of course the wine was red and the carpet is cream…

Now, I know that the best way to get red wine out of a carpet is to pour white wine on it. A quick dash to the fridge for my staple supply of cheap supermarket Pinot Grigio but disaster! Absolutely none in there at all. All I had was a bottle of rather good vintage Champagne that I was saving for a special occasion.

I must admit I did hesitate for a split second, and felt slightly sick. But the thought of the Merlot slowly soaking through the shag pile was too much to bear, and so, with a tear in my eye, I tipped the entire bottle onto the carpet.

So how does this relate to currency? Well, quite closely as it happens.

This extravagance with my Champagne led me to kick myself as to why there was no cheap white wine in the fridge. Then I remembered that I had not stocked up on the last trip to the supermarket because the price had gone up, form something like £3.69 a bottle to £4.39, which I objected to.

Very much like the Euro. Last summer you could get 1.45 Euros to the pound. Now you can only get 1.25, which is a 15% increase. It is hard to swallow, and the temptation is not to buy because you are a) resentful, and b) can remember it being cheaper, so you sit tight and hope it will go back there.

However, as I never tire of telling customers, if you definitely need to buy Euros this is a very dangerous strategy. It might go back to 1.45, but equally it might go to 1.15. Those who held off at 1.35 and were feeling smug, are no doubt now feeling as sick as a parrot.

If you need Euros (or in my case Pinot Grigio) you simply have to pay the market price. And if don’t need them yet, but you will at sometime in the future and you are worried about that price increasing still further, you should consider buying them forward.

Forward contracts are very easy to arrange, and they completely remove any risk of an adverse movement and the currency costing you even more in say 3 or 6 month’s time. You simply pay a 10% deposit and your Euros are fixed at today’s rate, no matter what happens in the meantime. It’s a strategy that works well for businesses that import or export and need to manage their cash flow in Sterling, and for Brits buying overseas property.

The result of all this is that I have learned my lesson. It’s no good preaching about how to mitigate risk of adverse price movements and then not follow my own advice. I have therefore now been out and arranged my very own forward contract. Six cases of the £4.39 stuff, on the credit card. Yes, painful that it costs more than it used to, but who knows, by next week it might have gone up again.

I’ve also replaced my Champagne. With my Pinot Grigio lake in place I think I’m on fairly safe ground. And who knows, there might even be an occasion to drink it….

Technorati Tags: Euro,Red Wine spillage,Forward Trading,Saving money on currency

4X opens a new office in Leeds city centre

This is just a quick post (while I am on the train back up from Brighton) to let you know what I was doing last Friday.

I met up with Chris and Seb from my public relations consultancy Wolfstar to take part in some creative photography for a new office opening.

We (4X) have recently opened a new office in my home town of Leeds and we felt it would be a good opportunity to do some local PR and creative photography.

As we are a company which helps businesses and individuals around the world to make transactions (in local currency) - we came up with the idea of me holding a globe in an iconic part of Leeds. Hence the interesting shot of me in Leed's City Square holding a silver sphere!

It was quite fun on the day, although the northern weather can be a little damper and chillier than Brighton's.

If you're interested in our office opening or seeing more shots from the day you can check out the full story in Wolfstar's social media newsroom.

And it appears it was worth taking on the weather as we have already managed to get a few pieces of media coverage including the front cover of the Yorkshire Post's Business Thursday which you can view here.

Technorati Tags: Leeds,4X Currency Corporation,Brighton,Wolfstar

Bill Gates has a tough week and the US catches a cold

It’s been a tough week for Bill Gates. According to the Forbes annual billionaires list, he has been overtaken as the richest man in the world by his friend Warren Buffett, who is now worth 62 billion Dollars. Gates made only a paltry 2 billion Dollars last year.

Elsewhere, many would like to have such a problem. The slew of bad news continues both at home and abroad.

Rising fuel and food costs, along with tighter borrowing conditions are hitting consumers hard in the UK. This has pushed the Consumer Confidence Index to its lowest level since the survey began.

A report from the Confederation of British Industry and Grant Thornton that said levels of business volumes and values in the service sector were rated ‘well below normal’.

Firms providing services to consumers, such as hotels, bars, restaurants, cinemas and gyms, were particularly pessimistic about the general business situation, with the steepest fall in optimism since November 2001.

And the result of all that was another week, another all-time low for the Pound against the Euro.

At nearly 77p to the Euro a café au lait and a croissant in a small French village don’t seem nearly as attractive. Britons with second homes aboard are facing a grim year, with the value of property across Europe likely to fall as the long-running continental housing boom finally runs out of steam, the Royal Institution of Chartered Surveyors warns.

The good news is that for those returning to the UK, the rises in continental property prices combined with the strength of the Euro will net a tidy profit when converting back into Sterling, and 4X’s new forward buying service means customers can lock in the current rate against future weakening of the Euro.

However the troubles in the European housing market pale into insignificance compared to America.

The number of US home repossessions, and the speed at which they were being repossessed, hit record levels in the fourth quarter of 2007, figures from the Mortgage Bankers Association showed on Thursday.

Separate data from the Federal Reserve showed that the amount of equity Americans have in their homes has dropped below 50% for the first time since 1945.

Added to this, the Dollar has plunged to new low after new low, making Asian goods, where the economies rely heavily on exports to the US, relatively expensive and tipping all the stockmarkets around the globe into huge falls.

The net result is the old adage – "when America sneezes the whole world catches a cold". Whether it will turn into pneumonia remains to be seen.

However, amidst all the gloom, it’s good to know that there is a ray of light, and some people are benefiting from the weak US Dollar.

The relative strength of the Euro against the Dollar saw the fortune of Liliane Bettencourt, of French cosmetic’s company L’Oreal, reach 22.9 billion Dollars last year and turn her into the richest woman in the world. Is that fair? Oh I think so.

All together now – because she’s worth it!

Technorati Tags: Helen Scott,Bill Gates,L'Oreal,Euro,Dollar,Currency Exchange,currency

Another day, another Euro - one giant leap into currency...

Today, if you hadn’t noticed, is the 29th of February, and rumblings have been heard.  No, not another earthquake, but the mutterings of discontent of the great British workforce. 

The gist of the gripe is that the extra leap day means that employers are getting a day’s free work out of their employees and that said employees should either a) be paid for an extra day’s work, or b) get the day off.  

This is clearly nonsense.  Anyone who gets paid hourly is presumably getting paid for the extra working hours.  Anyone on a salary is getting paid for the month.  All months are not equal, but an annual salary is divided into 12 equal proportions, despite the fact that some months are longer than others.  What people have failed to realise is that February, at 29 days, still shorter than every other month, so you are in fact getting paid more. But for what?

According to the Office of National Statistics, in 2006 productivity for the British worker was the lowest of all the G7 countries.    It was also considerably behind the US, which managed to produce a whopping 28% more per worker than we did.  The only one who did worse than us was Japan.

Productivity is one of the major factor in competitiveness, and one fact that has emerged this week, is that the UK is losing out in international trade, with a net 8% of exporters reporting demand below normal for February. 

The recent devaluation of Sterling to its all-time low against the Euro should have helped exports.  It might boost this a bit over the coming months, making our goods more attractive on the Continent.

However, a weak currency does not in itself increase competitiveness.  Inflation also plays its part, and the bad news for us is that energy and fuel prices are on the rise, pushing inflation towards 3%. 

Now all this reads to me as quite worrying. Falling exports is not a good position to be in, and, call me a killjoy, but frankly I just don’t think the British worker is in any position to cruise.  Much less to demand extra money or holidays for producing less per capita than almost every other developed nation in the world.

I have an idea. If employers are paying their employees the same amount of money every month, surely they should get the same amount of work every month as well?

Therefore, contrary to granting the 29th of February as an extra day’s holiday, employers should in fact be demanding three extra working days every normal February, and one extra day every 30-day month, thus bringing them all in line with, say, July, or the other 31-day months. 

Workers could choose to either give up a weekend to complete the extra days, or pay someone else to do it.  Productivity would rocket and we would be competitive again.  Drastic, I know, but we may well be sailing into drastic times…

Technorati Tags: Leap year,Currency Exchange,Euo,Exchange rate,devlaution of sterling

Rising gas prices are enough to drive us all to drink

There’s been a bit of a nip in the air this week. It may be something to do with the sudden cold snap we had on Monday. I was rather unprepared for the freezing fog and the icy ground that greeted me when I threw open the curtains. But although the weather has warmed up a bit now, somehow the chill still seems to be there…

I think it’s just one of those weeks where it’s hard to find anything to warm you up, either physically or metaphorically. Let me illustrate what I mean by a few examples of the stuff that has surfaced in the news this week.

1. More than one in three small businesses has lost money as result of errors in international banking transactions, costing every small company in the country an average of £400 per year.

Despite the fact that more than half such errors are the fault of their bank, 17% of companies have been charged extra fees to rectify the problem. The whole thing costs the small business community some £100m per year.

2. British Gas has reported profits of £571m in 2007 for its residential arm, up from £95m in 2006, a year-on-year increase of some 600%.

Rather than reduce fuel prices to its customers, it has instead decided to raise them by 15%.

3. The cost of barley is now so high that a pint of beer in a pub will soon cost £4.

Re. point 1, I would advocate smaller businesses to think seriously about who they use to facilitate their overseas payments. The common mistakes: incorrect account names; human error; bank delays and problems with unsophisticated foreign receiving banks need not happen if you use a specialist electronic provider such as ourselves. We are set up specifically to deal with all this.

I can’t do much about points 2 and 3, but I do have a suggestion.

If your average small businessman is £400 a year out of pocket, he’s not going to be able to take solace at home because he won’t be able to afford to pay his new British Gas bill to keep his house warm.

The obvious place to go is down the pub, where it is not only warm and friendly, he can have a glass of ale and forget his financial sorrows. But at £4 a pint he can’t afford to do that either.

Why not then introduce a new tax on the banks and British Gas, which makes them donate their excess profits to beer? The £600 million or so collected would release an extra 150 million pints of free beer a year, thus giving everyone a warm and happy feeling and eliminating the need to go home and pay the gas bill.

Do you know, I’m not sure I need this balaclava on any more……

Technorati Tags: British Gas,Beer

Technorati Tags: Barley,Financial advice