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Many CFOs do not know how much they are charged by their bank

The financial industry is one of the few industries in which it is really hard for customers to know the true price of the products or services they buy. Regarding foreign exchange services, the situation is even worse, it is almost impossible to know the fees and / or commissions you are really charged by your bank or broker. We have seen cases of companies charged up to 2.5% on EUR / USD spot transactions.

In a recent research report of 119 SMEs and mid-caps carried out by the ACCA and Kantox, 35% of respondents (mainly CFO, FD, Treasurers and Accountants) did not know how much they were being charged by their bank for foreign exchange transactions and the remaining 64% were probably also being charged more than they realized or anticipated (see figure 1).

Figure_1

                                                  Source: FX Survey

The foreign exchange market is based on opacity: fees, loosely named “spread”, are usually hidden in the exchange rate your banks or brokers offer you. So, without access to live market rates (through an expensive trading terminal like Bloomberg or Reuters) and with no in-house FX expertise SMEs and mid-caps can find it difficult or impossible to negotiate fair deals with their banks when exchanging foreign currencies.

Since the financial crisis of 2008, a majority (60%) of respondents have experienced an increase in FX costs. Although this increase is still small in the vast majority of cases, the implementation of new regulations on bank capital requirements (Basel III) and over-the-counter (OTC) derivatives clearing is likely to worsen the situation (see figure 2).

Figure_2                                                  Source: FX Survey

If you want to learn more about how companies manage their transactions in foreign currencies, you can download our survey here!

 Download FX Survey

Source: Hedging FX risk – Taking stock of the challenge for mid-caps and SMEs. A research report by Kantox Ltd in association with Association of Chartered Certified Accountants (ACCA).