The hidden currency costs of relocation

By using a currency broker, international assignees can save money when paying school fees or servicing a mortgage. Michael Freedman, of FXcompared Intelligence, explains how.

Currency exchange rates electronic display
Once a decision has been made to relocate an employee, suitable direct compensation has to be agreed. This needs to cover a diverse range of areas, from relocation costs to housing allowances, travel expenses, extra paid holiday for home leave, adjustments for changes in the cost of living, and earnings net of tax. The list is endless.Of course, it is not just the expatriated staff member who is affected, but, in many cases, a whole family. The impact of such a move may mean that children who previously lived at home and attended day school are now sent to boarding schools in their home country.In this case, the child can continue their education in their native tongue and education system.Other practicalities must also be taken care of – for example, maintaining one's home, perhaps paying an agent to do so, servicing a domestic mortgage, and so on.Each of these decisions, which are unlikely to be covered directly by an employer, involves the potential for currency exposure. While such costs are incurred in the home currency, day-to-day expenses will occur in the currency of the country of residence.Depending on what has been agreed with the employer, a secondee may be earning in one denomination or the other, and receiving his or her income in the home or host country.Therefore, careful planning must go into ensuring that, in both locations and in any given month, sufficient resources are in place to manage outgoings. This is easier with known, fixed costs such as school fees.Research by FXcompared Intelligence shows that average boarding-school fees in the UK are more than £10,000 per term, so parents must ensure that some £30,000 per annum is set aside in sterling. If the expatriate is now being paid overseas, funds must be sent back to the UK to cover this.Substantial savings can be made by using a service from a reputable money-transfer company, as opposed to a bank. Using these specialist currency brokers could save parents the equivalent of £1,009 per student per year – not an insignificant amount, particularly for a student who boards from Year 4 to Year 13.For the family of a student in this scenario, it would mean a saving of £10,081, equivalent to the cost of a term at the school; in other words, a full term would be free.A similar process can be applied to servicing a mortgage or other costs, leading to substantial savings, as well as more peace of mind for the relocated family, by reducing exposure to changes in exchange rates.As most of the world's economies return to growth, and the long-term trend of global mobility continues, the number of expatriates, and the volume of their spending, are on the rise.This means that it will become more incumbent upon employers and HR professionals to ensure that secondees accepting positions abroad are not left with unnecessary exposure.FXcompared Intelligence is the independent research division of money-transfer guidance, insight and comparison service FXcompared.