5 things you need to know about the EUR/CHF exchange rate

Whilst it isn’t necessary to understand all the intricacies of the foreign exchange market to carry out currency transactions, a better understanding can nevertheless help you optimise the way you exchange your Swiss francs by securing a better exchange rate. Discover the 5 key factors that influence the euro-Swiss franc exchange rate.

#1 The EUR/CHF exchange rate is determined by supply and demand

The Swiss franc and the euro are so-called ‘floating’ currencies: this means that the two currencies are traded at a variable rate, determined by the laws of the foreign exchange market. Supply and demand are therefore the two factors that cause the exchange rate to fluctuate.

Let us suppose, for example, that the EUR/CHF exchange rate is 1.10 (i.e. it costs 1.10 CHF to buy 1€ at time t) and that the market starts selling large quantities of euros against all other currencies at time t+1. The price of the euro will then fall, which will relatively strengthen the Swiss franc in the EUR/CHF pair. The value of one euro will then be less than 1.10 CHF.

We can therefore draw two conclusions from these observations on the EUR/CHF exchange rate:

• When there are more sellers than buyers, the price falls.
• When there are fewer sellers than buyers, the price rises.

#2 The EUR/CHF exchange rate is constantly changing

It is important to understand that the EUR/CHF exchange rate fluctuates constantly. Consequently, it will usually be impossible to compare the EUR/CHF exchange rate accurately between different financial institutions.

This is because the euro-to-Swiss franc exchange rate displayed by financial institutions and bureaux de change is generally not the real-time exchange rate, but the daily rate.

To get the latest exchange rate and minimise currency risk, the best option is still to use a real-time EUR/CHF converter such as the one provided by b-sharpe.

#3 The EUR/CHF exchange rate quoted by financial intermediaries includes various margins

The EUR/CHF exchange rate offered by bureaux de change, banks or online currency exchange services may vary from one provider to another. Why is this? Simply because each financial intermediary applies what is known as a margin, which represents their fee.

The margin is expressed as a percentage of the amount exchanged. It varies depending on the financial intermediaries involved. This margin is undoubtedly an important factor to consider when choosing a financial intermediary, as it is deducted directly from the amount you exchange!

When exchanging Swiss francs for euros, the margins may vary:

• Banks generally offer the highest margins (between 1.65% and 1.70% for amounts under CHF 10,000);

• currency exchange bureaux charge a mark-up (ranging from 0.65% to 2%);

• Online currency exchange services offer the lowest spreads (around 0.50%).

The size of the organisation, the number of intermediaries involved in the transaction and the level of digitalisation of services are all factors that affect the costs borne by each of these parties. These structural costs are reflected in the margins and are ultimately passed on directly to your wallet!

The best option is therefore to choose a structure:

• small or moderate in size;
• with as few intermediaries as possible;
• which offers a digital solution.

This helps to explain the rise and success of online currency exchange services such as b-sharpe, which ultimately offer the most competitive Swiss franc–euro exchange rates, including all margins.

#4 Swiss SMEs are being affected by the rise in the value of the Swiss franc against the euro

In January 2015, the SNB (Swiss National Bank) abandoned the EUR/CHF exchange rate floor. This move allowed the Swiss franc to appreciate rapidly and significantly against the euro.

Contrary to appearances, the appreciation of the Swiss franc – which makes it a strong currency – is clearly not good news for the Swiss economy in the long run! Indeed, half of the wealth created in Switzerland (GNP) comes from exports.

In other words, the surge in the value of the Swiss franc against the euro is pushing up export prices. Some Swiss companies are immediately losing ground in terms of competitiveness compared with their main trading partners in the eurozone, and SMEs are the first to suffer…

#5 Currency risk can arise at various levels

Faced with the latent exchange rate risk between the Swiss franc and the euro, some Swiss SMEs and large companies are choosing to invoice their goods and services not in Swiss francs, but in their customers’ currency: the euro.

Whilst, on the face of it, such a measure allows a company to maintain the same pricing and remain competitive, the risk lies elsewhere. By receiving payments in euros without adjusting its prices, the exporting company exposes itself to exchange rate risk.

Conversely, importing companies will be able to benefit from the appreciation of the Swiss franc by taking advantage of more affordable invoicing in a ‘weak’ euro. To manage this exchange rate risk, which always affects one party or the other, forward contracts allow the parties to agree on a fixed exchange rate that suits both signatories.
You are now fully aware of the ins and outs of the Swiss franc-euro exchange rate. Despite all these factors, there are simple solutions to optimise the Swiss franc-euro exchange rate!