Currency Exchange - Forward Contracts

Background

Over the past year, the Sterling-Euro exchange rate has dropped from 1.30 to 1.01, and then risen up to 1.20 again, with many experts predicting that the rate will recover to the 1.20+ level by 2010, and as high as 1.30 in early 2011. These fluctuations are incredibly significant for anyone moving Euros back to Sterling in the near future.

An Example

For example, if you are trying to sell a house worth €1,000,000, the rate in summer 2008 would have achieved a Sterling return of around £765,000, whereas at Christmas that year, the return would have been roughly £975,000, a difference of over £200,000 on the exchange rate alone. In July 2009, this figure would achieve a return of approximately £870,000.

Safeguarding against fluctuations

If you are waiting to sell your house overseas, you can fix your exchange rate today to guard against future fluctuations in the exchange rate, and guarantee your Sterling return at the current levels before the rate moves back against you. This can be done by securing a Forward Option Contract for up to 2 years. This allows you to fix your exchange rate at the current level for all or part of your currency requirement, with the option to complete on the contract any time in the next 2 years whenever you sell your house.

How it works

As with all Forward Contracts, where you are securing a rate of exchange before you actually need the funds, there is a small premium when compared to the day’s spot rate of exchange. However, the current interest rate means that this is a marginal factor when compared with the saving you will make upon completion of the contract if the exchange rate moves as experts predict over the coming months and years.

What is required

A deposit is required to arrange the contract, usually payable in Sterling or Euros. This is normally 10% of the contract value, which is returned to you in full on completion of the contract. If you decide not to sell over the two years, or it takes more than the two years to find a buyer, we can remove your position from the market simply by buying the same amount of Euros from our brokers to effectively cancel the initial contract.

Getting further advice

Clearly we are estate agents – not currency brokers! As with all periphery services, we have researched the very best in the business and are happy to either refer them to you, or to get them to contact you to arrange a no commitment consultation.