Buying currency using a forward contract and Calabria property Italy

How to get today’s exchange rate for a transfer you don’t need yet

Forward Contract explained

If you have to make a payment in a foreign currency for sometime in the future, but have concerns that the exchange rate could fall, costing you money, there is something you can do. Known as forward buying or forward contract, it is possible to put down a deposit (usually 10%) of the amount you require, and the rate is held until a future date you specify, at which point you send the remainder, and your currency is transferred to the foreign bank account you specify.

Forward contract
 

Case Study: In October 2007 the pound hit a 26 year high over the U.S dollar and it was possible to achieve over 2 dollars to 1 pound. At the same time, Tim Montgomery, a software programmer from Sussex, was buying a boat from Florida. He had been out there a few times, had chosen his vessel and was waiting for the paperwork to come through so he could transfer the U.S Dollars for the purchase. Tim was obviously pleased that the exchange rate was so favourable as it had already saved him a further £4500 from the time he had made his initial enquiries.

The days passed by and he had heard nothing. Then he received an email from the agent saying there was a problem with the boat as the previous owners were a divorced couple who were involved in a settlement agreement in which the boat was a part of. However he was assured the dispute would be resolved within two months.

He could pull out, but he was sure this was the boat he wanted, and didn’t really want to go through the whole process again. The exchange rate was however showing signs of going against him, so he wanted to find some way of stopping the rate while it was favourable before transferring all of his money. After doing some research on the internet, Tim found a website called ‘Currency Today’ that suggested a possible solution. On his $100,000 boat purchase, he could put down £5000 now, and hold the exchange rate at 2.0 for two months.

Two months later, his boat finally became available and the paperwork was sent through. Tim paid the remaining £45,000 to the foreign exchange company and his $100,000 was immediately sent out to the U.S bank account the agent had specified. Two weeks later, at the port of Southampton, Tim met his new boat, saving himself a total of £6000 through a favourable Dollars exchange rate, and forward planning.

How to keep an eye on the exchange rate, without being there

If you need to watch the market closely for an imminent transfer, you may have found it’s not only an arduous task, attempting to will an uncontrollable market, but also time consuming and often impractical to fit in to a working day. Fortunately, it’s possible to call upon the expertise of a foreign exchange company, who will assign you a ‘personal account manager’. This is basically someone who will watch the market for you, and act on your instruction for buying and selling any amount of foreign currency you need. They also have the ability to set a level in the market above where it may be currently (known as a limit order) or below where it is currently (known as a stop order), to either achieve a rate you want, or prevent you losing any more than you have to if the exchange rate falls.

Case Study: Neil and Sue were emigrating to Calabria Italy. When Neil had his offer accepted on the Property in Calabria Italy for sale, he wasn’t concerned with the exchange rate as it was fairly stable and at the level he expected. However, after contracts were exchanged and it was nearly time to begin payments, an energy crisis had hit the country, with wide scale power cuts affecting the exchange rate. Neil noticed that the price he would have to pay for his property had just risen by about 7%. In an attempt to reduce some of these losses, he started to watch the markets much more closely, hoping he could move as soon as he saw some decent gains.

They were however a long time coming, and he found he was spending a great deal of time glued to his computer screen, his family and business being neglected in the process. Finally he found a way out, sourcing a reputable foreign exchange company that introduced him to someone who would watch the market every day for him. He was still able to find out what was happening, as he had a direct line to his ‘foreign exchange broker’, and if there were any noticeable changes in either direction, he would receive a phone call as well to keep him informed.

After talking with his advisor and discussing the options he had, Neil decided to put in a stop order (setting a rate that would buy automatically if it fell to that level), so if the exchange rate did crash again, he wouldn’t lose out on any gains it had made following that. Fortunately he didn’t need to use it, as the constant communication he had with his broker enabled him to buy a rate that he was happy with. Sourcing and buying his dream property for sale Calabria was no longer a dream for Neil and Sue.

If you wish to buy Euros or Pounds contact Currency today for your currency exchange rates

Toby Fischer of Currency Today explains the service he can offer to his clients