 |
 |
|
|||||
|
Issue 00525 |
July 5 - 11, 2008 |
issn 0856 - 9135 |
||||
|
|||||||||||
|
Talking business |
Hitting better deal in exchange
rates By
Vincent Obiro Orute Obunga Exchange rates have become an important aspect of the financial news in recent times. It is a common practice for most people especially those living in border towns to look up the Dollar value of the local currency and often show concern about any depression in its value. Students of these rates have been pointing out that there are a few shillings or dollars to be made owing to variations of the Dollar rates. The difference between the currency rates is usually absorbed in the costs of transactions that are charged by an array of commercial banks that deal in foreign currency. But these days, where there is an array of forex bureaus in major towns of East Africa and areas frequented by tourists, this is not automatically the case. There is room to rake in a few shillings or even dollars in the business called ‘arbitrage’. Under arbitrage, one buys a particular currency at a lower rate and sells it later at a much higher rate, thus giving himself some reasonable margin of profit. There are banks and forex dealers who buy and sell the major currencies of the world in most towns of East Africa, thus, exploiting small variations in currency rates and dealing in very high volumes. It is a very old trade and the difference between the values of particular currencies gives commercial banks and forex bureaus that deal in foreign currency some reasonable margin of profit. When a particular currency starts to move, its regional neighbors may not immediately move at the same rate so the potential for profit arises and varies a great deal. In the major currencies of the world such as the Dollar, the Euro, the Pound Sterling, and the Japanese Yen, there are market places in major towns where one can make reasonable gains from the variations of these currencies vis-ŕ-vis local currencies. There are also exchanges where one can deal only in the likely differences in the rates. A future’s exchange is such an exchange. Banks and Forex Bureaus in East Africa offer forward positions to their clients mainly tourists and tour operators which enable trading in the foreign currency market possible. The key feature in these markets is information. If one is to exploit some small variations in currency rates and thus earn some few shillings or even dollars, one must know the relevant information prevailing in the foreign currency market. In the past, it was only the mass media that used to provide instant information on the ruling rates of exchange in the foreign exchange market. But these days where there are mobile phone outlets and internet cafes in major towns of East Africa, this is not automatically the case. The rates of various foreign currencies that are traded in the foreign currency markets are largely determined by the market forces of demand and supply. Information, normally in the mass media often creates demand for a particular foreign currency. However, some news in the mass media may sometimes be manipulative of prices. Instances have been observed where individuals or single organizations have bought foreign currencies to influence the demand. The purchase is then cleverly re-advertised in the mass media to create a psychological confidence in the currency or currencies in question and as the demand surges, the rates rise considerably and consequently the individual or organization that bought the foreign currency in question sells it at a much higher rate thus raking in cool shillings or even dollars in profits. Information on exchange rates and factors affecting those rates normally create demand. There is however, a need to avoid them as manipulative tools. To my way of thinking, commercial banks and forex bureaus that deal in foreign currency should mobilize their research units to analyze the trends or movements in foreign currency markets and provide their clients with clear forecasts besides other data at their disposal. This in my considered opinion would assist clients to make up their minds within certain contexts. Such information should not be calculated to make clients make predictable decisions to favor commercial banks or forex bureaus that advised them. Rather, such information should be used as a useful guide to make clients choose freely where to obtain foreign currency from. It is strongly recommended that there be a cluster of independent market analysts who are outside the class of major commercial banks and forex dealers, so as to have a fairer price determination in the foreign exchange market. To ensure good and efficient service delivery to clients by commercial banks, forex bureaus and other non- bank financial institutions that deal in foreign currency, transactions should be made available to clients cheaply instead of levying exorbitant fees and commissions to them. There should also be a reduction in manipulative forex rate determinations if clients are to have a better deal for their money. Vincent Obiro Orute is director of operations, Volunteer Network Africa, a volunteer organization committed to social and economic change across the globe, Website: www.volunteernetworkafrica.org Webmail: volunteernetworkafrica.org Email:Vincent@volunteernetworkafrica.org or orutev@yaho.com
|
|
|
|
|
|
|
 |
|
|
