How to Avoid Forex Markups in International Transactions?

Payment to international buyers or business partners generally costs a variety of fees, like SWIFT charges, service charges, and markups on foreign exchange. Out of these three, markups on foreign exchange can amount to significant money loss, and one should therefore familiarize themselves and maintain a minimum of these secret fees. Exporters, freelancers, and organizations making cross-border payments can save more of their earnings by initiating measures that will reduce such charges.

Forex markups are additional charges that banks and payment providers impose for converting foreign currency to local currency. Most people think they receive the actual exchange rate, but financial institutions apply a hidden margin.

To illustrate, if the true market rate of 1 USD is Rs.87, a bank would impose a 2-2.5% markup and reduce the exchange rate to Rs.85 per dollar. On a $10,000 transaction, the seeming trivial difference involves a loss of Rs.20,000. These markups are usually minuscule but have significant effects on cash flow, especially for businesses making regular international transactions.

How to Stay Away from Forex Markups?

1. Compare Live Forex Rates

Before taking an exchange rate offered by a bank, compare it with live forex rates offered on websites like Google, XE, or Bloomberg. If the difference is more than 0.5% of the actual rate, then there is a great likelihood of paying more than required on the currency exchange.

2. Use Multi-Currency Accounts

Global banks and fintech platforms provide multi-currency accounts, allowing businesses and individuals to receive payments in foreign currency without immediate conversion. This can help avoid unfavourable exchange rates at the time of payment. However, under Indian regulations, funds must be converted into Indian rupees within a specified period.

3. Use RBI’s Retail FX Portal

The Reserve Bank of India also offers a Retail FX Portal which gives a transparent and competitive forex transaction platform. This allows people and businesses to directly access better exchange rates with a reduced impact of hidden markups.

4. Identify Hidden Charges

Apart from markups on forex, intermediary bank charges, wire transfer fees, and service fees can further reduce the amount received. It is essential to consider all the fees that are incurred in order to complete international transactions with fewer deductions.

With these methods, individuals and businesses can effectively manage forex costs and achieve the maximum returns from international transactions.