The Foreign Exchange (Forex) market is the market in which currencies are traded. It is the largest, most liquid market in the world. There is no centralized location – rather the forex market is an electronic network of banks, brokers, institutions, and individual traders – Investopedia
What the above does not tell you about the forex market is that it is also one of the most opaque markets (due to the lack of an unregulated central order book). Loaded costs are a reality for uneducated clients not making use of good intermediaries. Due to their low costs, excellent service and transparency, Vista makes use of Mercantile Bank for our client’s forex needs:
- Mercantile is a South African bank which is 100% owned by Capitec and will soon be changing their name to Capitec Business Bank
- All money and transactions are always conducted in the client’s own segregated account. A client can open one or many of the following foreign denominated currency accounts in their name: USD, EUR, GBP, JPY, CAD, CHF, HKD, SGD, CNY, KRONE, AUD, NZD, BWP, MUR
- It’s important to note the Mercantile transmission accounts are not replacing the client’s local or foreign bank accounts (Standard, Nedbank, HSBC, CITI, etc.). The Mercantile transmission bank accounts are merely the “conversion agent” paying and receiving currency between local and foreign bank accounts
What is the process? Two Mercantile Bank accounts are opened in the client’s name. There is always one ZAR and the other in the foreign denominated currency(ies) of the client’s choice. It takes approximately 2 business days to open any number of accounts. When converting currency, one currency is always sold while another is bought and vice versa. Vista performs these buying/selling forex transactions on behalf of our clients.
What is the cost? There is no cost to open and maintain Mercantile bank accounts. Conversion cost is very transparent and is a pre-negotiated spread that is added to the buying or selling price of the currency in question. There is also a fixed SWIFT transaction cost of R350 per transaction which is applicable to any foreign currency conversion.
What about exchange control? An SA resident with a green bar-coded ID book or smart ID with a SARS income tax number, can utilise their individual offshore allowances of up to R11 million (R10m foreign capital allowance and a R1m single discretionary allowance) per calendar year (1 January to 31 December). For amounts utilising the R10m foreign capital allowance the client must be over the age of 18 years and will need to apply for a foreign tax clearance from SARS.
What about hedging? Through currency futures listed on the Johannesburg Stock Exchange (JSE), Vista can also assist clients to lock in an exchange rate for a future currency conversion transaction, thus providing a one-stop forex solution for clients.
What are the interest rates? While a client will receive a great interest rate (≈7%) in their ZAR Mercantile account, interest is currently not paid on foreign denominated currency accounts at Mercantile. For this reason, Vista partnered with Investec Corporate Cash Manager (CCM) to provide clients with a US Dollar (USD) interest bearing account earning ≈1.7% interest per annum on their USD.
What about Financial Emigration? Vista forex services also assist clients wanting to financially emigrate and therefore conclude their financial affairs from a South African point of view. The process is conducted on behalf of the client through the South African Revenue Service (SARS) and the South African Reserve Bank (SARB). The Mercantile bank accounts are used as “Blocked Rand Accounts” for clients needing to move money in and out of South Africa once emigrated.
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