Currency exchange advice - facts and figures
Fact: Over the last twenty years Sterling has covered a range between €1.19 and €1.76; the midpoint of that range is €1.4750. Fact: The average exchange rate for Sterling/Euro over the last five years is €1.4750. Fact: At noon on 5 June 2007 Sterling/Euro traded at €1.4750. So what is it about €1.4750? Is it the result of a nefarious plan by some evil financial genius to destabilise the Western European economy by making currency exchange rates so dull and predictable that investors all die of boredom? Or is it a fluke?
Currency exchange rate movements
Let's go with fluke. It is just a coincidence but an interesting one. And it draws to attention just how steady the exchange rate has been during the last three months. Except for a few days when it absent-mindedly wandered off, Sterling has stayed between €1.46 and €1.48 since March. It is an unusual performance from a currency that moved three times as far as that in February alone. |
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Stable currency exchange suits French Property buyers
The question is, can this stability persist? If it could, life would be much more relaxed for anyone with an exposure to exchange rate movements.
Exporters and importers dealing with Europe would find it easier to keep their prices - or their margins - steady. Holidaymakers would avoid being surprised by the price of sangria in St Tropez. And of course property buyers would not have to fret about Sterling going down the swanny during the inevitable wait between finding a French property and completing the purchase.
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Can currency exchange rate remain on an even keel?
So to repeat the question, can this stability persist? Maybe. Volatility has been low for the last three months; it could stay low until September. But it's a big ask, a bit like getting three days without rain in Seathwaite and then looking for another three. It is not impossible but it certainly is not likely.
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Currency exchange spot transactions and the French property market
In matters of currency risk management, hope is a fairly useless instrument. The only way to protect yourself against a falling Pound - or a rising Euro - is to fix the exchange rate as soon as the French property purchase is agreed. That way, it does not matter what happens afterwards to Sterling. Wherever it goes you are locked into paying a fixed number of Pounds and receiving an equally certain number of Euros for your French property. If cash flow is not a problem you can arrange the transaction for prompt settlement or "spot" as it's known in the trade (settlement actually takes place two working days after the deal is struck, to allow time for payment to be made and received). (Currency exchange options which save you money.)
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Currency exchange forward transactions and the French property market
If, on the other hand, finance will need to be arranged and you do not have a couple of hundred thousand Pounds kicking around under the bed, the transaction can be arranged for "forward" settlement in, say, three months' time. With a forward trade, instead of handing over all of the Sterling immediately for your French property, only a percentage need be placed as a deposit. The balance need not be paid until settlement day arrives. Otherwise the trade is similar to a spot transaction.
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Exchange rate can be set when buying property in France
With forward transactions, the currency exchange rate is agreed at the outset so the Sterling and Euro amounts are fixed at that point. You know from the very beginning how many Pounds you will have to pay and how many Euros you will receive. A settlement date can be selected to match your anticipated completion date. It is normally a simple matter to tweak the date of that settlement if your French property purchase proceeds more quickly or more slowly than anticipated. (Currency Exchange - Buying Euros at the Best Rates - Your FAQs.)
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Currency exchange advice
Sterling's recent run of stability shows no immediate sign of coming to an end but it would be a triumph of hope over experience to assume that it will continue indefinitely. The only way to be sure of your exchange rate when buying your French property, is to fix a price. With a forward transaction you can achieve that protection immediately without having to come up with the full Sterling amount on day one. It will be good for your cash flow and even better for your ability to sleep easily.
Additional article which may be of interest:
Advantages of using a currency broker or foreign exchange specialist
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About the author
The information in this article has been supplied by the currency broker Moneycorp. For further advice on currency exchange and money markets, please contact Moneycorp directly using the links below.
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