Whether you are considering a large international investment, property purchase, long-term property development or simply trying to manage a regular fixed overseas transfer, foreign exchange management will be paramount. With currencies having the ability to move dramatically over relatively short periods a badly managed transfer can seriously impact a property purchase or development.
Foreign exchange management – overseas property purchase
When purchasing or investing a significant amount of money overseas there are number of ways you can ensure your budget doesn’t need to spiral dramatically out of control due to volatile currency movements. As mentioned in previous guides a specialist currency providers offer a number of foreign exchange contracts to ensure your purchase goes smoothly whilst offering the maximum amount of flexibility. However, the real key can be in implementing a number of these options in order to both manage the risk of your base currency devaluing whilst having the possibility of being able to benefit from a superior future rate should the market rise in your favour. This can be particularly beneficial around times of political uncertainty or when data releases have been inconsistent
A couple decide to fulfil their dream and commit to buying a property in southern France. They have an offer formally accepted at the end of February and after reviewing the contract proceed with the initial ‘compromise de vente’ at the beginning of March. The legal work is promptly dealt with by the solicitor and they perform a spot transfer a week later and receive a GBP-EUR rate of 1.28. The sale moves on nicely and a sale date is agreed for the last week March, the couple are therefore expected to credit the solicitors account a few days before. They promptly as agreed arrange the remaining funds to be transferred and receive a rate of 1.27. Many of you may consider this particular process to have been fairly well executed however there are some ways of improving this scenario and limiting risk whilst having the ability to benefit from higher rates.
Benefits of risk management tools and market orders
Well not exactly; during this time particular property transaction period the market hit a low of 1.237 and a high of 1.2882. Had this couple received the correct amount of consultancy they could have benefited from a superior rate with a market order but more critically have protected themselves against adverse fluctuations via a Stop loss. Imagine if the downward trend had continued or they had simply found the property a few months before. They would have been obliged to transfer their final property payment based upon a rate of 1.23. For every £100,000 being transferred this variation would equate to the differential of EUR5,182 just over a few months.
Benefiting from market highs
Another example of the advantages of currency management being beneficial is when markets hit highs. One way of benefiting from these highs is when making frequent mortgage payments. For instance, if you are the owner of a property overseas and you have a monthly € mortgage commitment. if you learnt that USD/EUR or GBP/EUR had hit a 6 month high you may be tempted to fix a portion of your mortgage payments.
Many Foreign exchange specialists offer Foreign exchange management for clients wishing to guarantee their fixed cost and can offer the ability to fix the rate for a few months to two years. The client will just simply fix the total Euro amount needed for the agreed period and fix the rate with a deposit. The client will just transfer the GBP or USD amount which will be converted at the previously agreed fixed rate. Therefore, the client would avoid fluctuations and know the exact cost of his mortgage for up to 2 years.
If you would like to learn more about foreign exchange management in order to get the best value on your international payments, please feel to get in touch [email protected].