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How to avoid foreign exchange fluctuations
BACK
If you are planning to buy a property, emigrate or retire overseas there is more than enough to think about, which is probably why this very important stage is often overlooked, until it is too late.
Exchange rates can swing against you in a very short period of time. In the six weeks between agreeing to buy a property and actually paying for it on completion, the currency exchange rate could easy change by 5%. Now that might be 5% in your favour, but can you take that risk?
For Example: If you were buying a property in Spain for €300,000 and the exchange rate was 1.50 € to the £, then your purchase price in sterling is £200,000. If six weeks later the rate had fallen to 1.45 then you would need to pay an additional £7,000.
The good news is that your foreign exchange dealer can help you to avoid this risk and it’s not as complicated you might think.
Opening a Trading Facility
First you will need to open a trading facility with a foreign exchange dealer. (There is no charge for opening a facility and it does not commit you to anything). Then, when you are happy with the exchange rate and know the date in the future that you need to transfer the funds overseas, ask your dealer over the phone to ‘forward buy’ the foreign currency for you. The dealer will then effectively fix the exchange rate for you.
Transferring Funds
When the time comes that you need to transfer the funds overseas, for example six weeks later when you are about to complete on the purchase of your new overseas property, simply transfer your UK Sterling to your dealer and he will transfer the foreign exchange to the overseas lawyers dealing with the purchase. The amount transferred will be the amount that you had previously agreed, when you fixed the exchange rate.
Forward Buying
Forward buying simply means that the dealer will buy the currency on your behalf at the current exchange rates and hold the funds on account for you, until required. They simply ask you to pay a 10% deposit at the time that you place the order. With Moneycorp you can forward buy your foreign exchange up to 2 years in advance, but secure today’s exchange rate.
Buy at Best Rate
As an alternative to this, if you have some flexibility, you can instruct your dealer to buy your foreign currency, but only once the market gets to a specific exchange rate. Your dealer will use their experience to monitor the market for you to try to secure a better rate than that currently available. Some of the larger and more established firms like Moneycorp are able to do this for 24 hours a day, instead of only during London trading hours.
IMPORTANT
The thing to remember is that your foreign exchange risk starts from the MOMENT that you have a commitment to any transaction, where you pay or receive funds in a different currency. It does NOT begin at the time that you actually make or receive the payment.
Your foreign exchange dealer is on your side to guide you through all the options available and ensure no more sleepless nights!
NEXT STEP
Open a Trading Facility
This is straightforward and should take no more than a few minutes of your time.There are no obligations whatsoever in opening a Trading Facility with Moneycorp.
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