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Currency
management.
WHEN
AND HOW DO I EXCHANGE MY MONEY TO EUROS?
If
you are looking to exchange large sums of money into euros over
a broad timescale, as you would when buying your overseas property
think about ways to get the best deal and protect your money
against exchange rate fluctuations.
It
is strange to find that purchasers of property in France are
always keen to negotiate a good price on the house of their
dreams, but then fail to appreciate that great savings can be
made by ensuring that they receive the best exchange rate into
Euros.
We tend to shop around for most things in life, but when it
comes to currency, most people simply head straight for the
bank. Mistake ! Banks do not offer you the best currency rate
options.
There
are two ways of securing yourself the best exchange rate within
your timescale:
1)
Buying
Spot : The
Spot Contract is the most basic and popular foreign exchange
product. It is an agreement to buy or sell one currency in exchange
for another. You have 2 days to settle the contract, at a price
based on the prevailing "spot exchange rate" the current
value of one currency compared to another.
Although the spot market lets you buy or sell currency as you
need it, spot exchange rate movements are highly unpredictable,
even during a single trading day. Upon receipt of cleared funds
currency is available for onward transmission.
Or you may feel that you would like to leave what money you
have in your domestic account to accumulate interest and only
change your money just before the signing of contracts- this
can be risky, however, as the Euro and pound fluctuate in value
leaving the final price in pounds uncertain.
2)
The
forward contract -
A Forward Contract lets you buy or sell one currency against
another, for settlement no later than on the day the contract
expires. Unlike spot contracts, a forward contract eliminates
the risk of fluctuating exchange rates by locking in a price
today for a transaction that will take place in the future (up
to a maximum of 2 years). A 10% deposit is required to secure
the contract and is payable within two working days with settlement
due on the day the contract expires.
This option gives you peace of mind as you know exactly what
you will be paying for your villa or apartment overseas, so
that you can budget your finances without any nasty surprises.
Hence it is especially useful when buying properties off-plan
with 3 or 4 stage payments of 18 months so you don’t end
up going over budget. Also, because you don’t have to
pay for the Euros until the maturity date it frees up any money
you have and gives you some time to arrange the finance. All
you will have to pay is a 10% deposit of the amount you wish
to buy with the balance due on maturity of the contract.
This
forward contract is also useful if you receive a pension in
pound sterling but live overseas. In this case you may want
to be sure what your monthly income will be up to two years
in advance so that you plan your finances. Also, if a French
mortgage is paid for out of a pound sterling bank account you
can ensure that the monthly outgoings are the same each month
by entering into a forward contract.
If
you can afford to take the risk and speculate on the foreign
exchange market in the hope of paying a lower price for your
property then it may simply be best to buy the Euros spot as
and when you need them but for most people the second option
makes more sense.
WHO
DO YOU USE?
You
have two options: either use a regular bank which you are comfortable
with which may not always offer the best deals or speak to a
recommended currency specialist who focuses on currency transfers
and could well offer you better rates of exchange and more efficient
& personal service.
Either
way, your money is precious and like most people what you really
need is piece of mind and to leave the risk taking to the professionals.
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