Question:
I have some money in the UK which I need to bring back to SA to generate interest to supplement my income.

Do I bring it over now or wait until the exchange rate is more favourable? What kind of investment would be best and secure (i.e. low risk, but good interest). Many thanks

Answer:
Gosh, explaining this in understandable prose is not easy, but I?ll try!

The main reason for the UK pound?s fluctuation in value to the South African rand is based on supply and demand of currency.

The exchange rate between the pound and the rand is lower at the moment because there has been an increased supply of pounds to SA mainly due to our interest rate (i.e. return on cash) being much better than the UK?s. So a flood of pounds to SA has resulted in SA having to pay less and less for a pound, especially when compared to the R16 we had to pay in March 2008!

Currently, one will pay around R11 for a pound, which means for every pound one brings over now one will only get R11, as opposed to R16 a couple of years ago. It would have been so much better if you had transferred the money then!

So, when can we expect the exchange rate to be more favourable? Well, the easy answer is when the supply of pounds to SA decreases or the demand for rands decreases.

There are so many different factors that affect currency demand and supply, not only the interest rate mentioned above. This year, for example, the Soccer World Cup should bring in some more pounds from UK visitors. If all other things remain the same, the pound supply may increase causing the rand to strengthen even more against the pound. Or, masses of UK and global investors could withdraw pounds from SA and invest elsewhere simply because they could get a better return.

How long do you want to wait before you transfer the funds? Can you afford to wait another two years or so? If we look at the last five years, the UK/SA exchange rate started out at R10.88 to the pound in Dec 2004, peaked at R16 in Mar 2008 and is now back at about R11.90. Also, a world coming out of recession could throw any number of curve balls in the next few years, so I?m afraid, as always, it?s rather hard to know what will happen with the exchange rate.

Article continues on page two: why you should bring it back, no matter what the exchange rate is...