Avoid the Risk of Exchange Rates Moving Against You
With the International Markets so volatile in recent times, many people are examining their options when looking to exchange currency long before the sale of a property. Monitoring the exchange rates weeks, or months (preferably) in advance helps you to understand the movement of the currency pair you are following, which of course gives you a more-educated opinion when the premium moment to lock in an exchange rate occurs.
Aside from the ‘spot rate’ available on any given day, you do have the ability to reduce or even eliminate the risk of the currency moving against you prior to your move or settlement date.
Using the Free technology, services and information provided by NZForex will allow you to be best placed to make an informed decision on when and how to make an International transaction. Speak to your Loan Market mortgage broker about registering to gain access to the NZForex Dealing Desk 24 hours a day 5 days a week, to assist with your requirements.
The risk of exchange rates moving against you can be managed by entering a Forward Exchange Contract (FEC). An FEC is an obligation that allows you to buy or sell a specified amount of foreign currency at a fixed exchange rate (agreed upfront) for settlement at a specified future date. The Forward Exchange Contract effectively locks-in the foreign exchange rate for a future date, eliminating the effect that fluctuations may have on the proceeds of your transfer (for better or for worse).
Forward Contract Example
Assume you like today’s exchange rate (or don’t want to risk it getting worse) and you will be receiving the British Pound proceeds of your house sale in 60 days which need to be converted to Kiwi Dollars:
Day 1: Agree on the exchange rate with NZForex at which you will convert your Pounds for Kiwi Dollars in 61 days. Once the exchange rate is agreed, you won’t benefit from British Pound appreciation but you won’t suffer depreciation either. Usually you will be required to provide a deposit of 5-10% of the amount to be transferred.
Day 60: You transfer the agreed British Pounds to the NZForex account.
Day 61: NZForex transfers agreed Kiwi Dollars to your account at the pre agreed rate.
Forward Contracts give you a known outcome prior to you actually moving funds.
Exchange rates fluctuate every minute of the day, 5-days a week. The market does not open and close as such, it just moves from London to New York to Asia to London and so on, as they say “Money Never Sleeps”.
Most people simply don’t have time to watch the market day and night to optimise the exchange rate they secure for transferring funds abroad, and that can mean less money for their new life overseas. One way to beat this problem is to place a ‘limit order’ by instructing NZForex to target a more advantageous rate.
If you would prefer to be made aware of the movements, without being obliged to lock in a rate, you can also set ‘rate alerts’ to be made aware of a currency pair moving towards or against your desired levels. These alerts can be emailed or ‘texted’ to you at your request 24 hours a day, at which point (if you choose) you can book a deal online, by speaking to one of our dealers or by using our mobile applications.
NZForex offers these risk-management tools to clients free of charge. All orders are monitored 24 hours a day by our Sydney, Toronto and London dealing rooms. That means that no matter what time the day or night, NZForex can take care of your forex needs.
Speak to your Loan Market mortgage broker and you will be contacted by the NZForex dealing desk to discuss your requirements.Tags: currency, Exchange Rate, foreign exchange, NZForex