Dubai is expected to hit 20 million visitors per year, by 2020. It is becoming a wealthy hub of opportunity for business people as well as a gorgeous and luxurious holiday destination. Given its small population and size, much of Dubai is becoming made up of tourists and expats. For this reason, sending money to and from Dubai is becoming a big deal. This article aims to break down some of the better ways to go about this; what companies to use, whether it makes sense to do it in lump sums and even touch on the potential uses of forward contracts.

UAE demographic

UAE has a population of 9.2 million. There are 7.8 million migrants living in UAE. This is around 80% of its population as migrants. There are also almost 20 million tourist visitors in Dubai each year alone, with it expected to hit 20 million in 2020. Furthermore, many business people are working remotely for Dubai companies but living elsewhere. This means that they received their salaries in Dirham, but need to transfer it each month to their residential currency. As we can see, currency exchange is integrated into the culture of UAE at this point - it is particularly important that those affiliated with UAE are knowledgeable on FX.

Why it can be expensive to move money into the UAE?

The Dirham is pegged to the US dollar. This means that wherever the US dollar fluctuates to, the Dirham follows. For those American tourists or expats, this is convenient. Currency risk is not much of a problem. Even for those who operate with other currencies such as the euro, the Dirham is short to be as stable as the US dollar regardless of UAE politics.

Despite this, the Dirham remains to be an expensive currency. Just because it is pegged to the US dollar, it doesn't mean that it equals the US dollar. The Dirham is actually over 3 times more expensive. Because of the high demand of the Dirham, and its perception of being an exotic currency, banks tend to attend to apply an even bigger spread when exchanging to it.

This could mean paying a fee of up to 5% or 6% when exchanging to Dirham. Because of the wealth that is associated with Dubai expats, this is often accepted and overlooked.

Which companies offer transfers to UAE?

Many of us rely on commercial banks to transfer our money, but it is such a bad, lazy habit. So much money can be saved by seeking out other alternative companies that specialize in providing a much better service. If your mind is empty at the thought of other, alternative firms that offer transfers to UAE, here is a list of a few to give you an example:

• TransferWise
• Currencies Direct
• World First
• FGB
• PayPal
• Torfx
• Global Reach
• XE money transfer
• Moneycorp
• OFX
• Currency Solutions

To be more specific in giving an example, UK to UAE transfer (Pound to Dirham) is a transaction that could be made with TransferWise for a 0.5% fee. The rate you will be offered however does not include a spread, meaning it is the real spot rate. Some companies offer a small spread but no fee, some offer a small fee but no spread, and some offer no fee, no spread but a small limit on the transfer amount. Many large companies will also have an office in Dubai, but given the fintech trend of digitalized payments, visiting local branches is becoming obsolete.

Lump sum or monthly transfers?

Those who get paid a monthly salary in a foreign currency (or an expat who is collecting pension from their residential currency) often ask if it’s better to exchange their money as soon as they receive it, or wait and do it in one go when the market goes up.

There are a few factors to consider here, but generally, you should transfer it monthly.

Letting your money build up into a big pile of cash in a currency that you do not use (or one that isn’t as relevant) means you’re exposing yourself to currency risk. You could get more for your money in 6 months time, but you could get less. The most important thing to remember is, you can’t guess which way it will go. No matter how smart you are or how much news you watch, it cannot be predicted. End of!

So, do you take the gamble? Clearly there is no incentive to. The only reason why you might be enticed into doing it all in one go is because some companies charge a smaller fee or offer a better price when the volume is greater. If this is the case (which it often is) and your mind is very much on a lump sum, big one-off transfer, then it may be worth looking into buying a forward contract.

A forward contract is essentially an agreement that you will buy a certain amount of currency at a fixed price, at a given future date. The date is set in stone and the price is pre-agreed. This means that you are not at risk of the price going down, yet you still can wait until you hand over the money for the big exchange (you could save up for months).

This way, you get the cheaper FX rate but with none of the risk of waiting. This is particularly important if we go back to the UK/Dubai scenario, but let’s reverse the scenario to a person living in the UK but is getting paid in Dirham. With Brexit looming, no one knows what is going to happen. Those expats living in London are probably happy with a no-deal crash because they get to pick up more pounds with their Dirham income. However, the price is already pretty cheap because this is what is expected to happen. So, what happens if the tables turn and Brexit doesn’t happen? The pound could get significantly more expensive. The sensible option is to buy a forward contract, because the reality is that the pound is in the middle right now, and it could go up a lot or down an awful lot depending on what happens.