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Currency exchange options which save you money
How to buy currency at the best rates

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Currency exchange options which save you money
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Choose the best finance option for you!
There are four main options available to those wanting to buy a house in France. The first two listed here (Spot Contracts and Forward Contracts) are the most commonly used. We have included examples in an attempt to make the options clearer for you, though should you feel you'd like additional information on these finance possibilities, currency brokers are only happy to help.

A. Spot Contracts
This is the simplest option which involves the buying of currency "on the spot" ie: an immediate purchase at an agreed exchange rate (valid for two days) usually for immediate delivery. So funds must be available at the time. This can be beneficial, if for example the rates offered by currency brokers are low when buying a certain amount of euros. But should you use spot contracts over a succession of payments, you must be aware of that you are totally reliant on exchange rates, which can go up and down.

The minimum amount that can be bought is usually £5,000 (or currency equivalent), though smaller amounts are considered.

Spot contracts example 1:
The currency broker Moneycorp offers the following example:

A client booking a spot contract in August 2005 to buy 150,000 euros would have paid approximately £105,285 at a rate of around 0.7019. However, had the client purchased the currency just three months later in November 2005, the rate would have been nearer 0.6702, which would have cost the client £100,530, a saving of approximately £4,755.

B. Forward Contracts
This option provides a certain degree of security, as it protects you from adverse currency movements or ‘currency risk’. Here you have the opportunity to ‘fix’ or ‘lock’ into a favourable exchange rate, sometimes for up to two years. This often works well when buying property as it sometimes takes quite a few months between the signing of a sales contract (known as ‘exchange’ in the UK) and completion. If you could purchase a forward contract on the initial signing at a beneficial exchange rate, you would save money should the rate fluctuate adversely prior to your completion.

You also have the advantage of being able to organise your budget accurately, should you have more than one payment to make over months or years. Buying off plan is one example of this, though this is more common in places like Spain than it is in France. Normally you would have a deposit to pay on signing the sales contract, another percentage to pay six months prior to completion, with the balance payable on completion. If a forward contract was agreed at the start for all payments, not only would you be better off should the rates have changed for the worse, you would also know exactly what your payments would be at all stages, offering a certain ‘peace of mind’. (Incidentally, you must bear in mind that rates can go either way, possibly making your ‘fixed contract’ payments higher than they would otherwise have been. Unfortunately this is a risk you must be prepared to take.)

The minimum amount that can be transferred is usually £5,000 (or currency equivalent), though smaller amounts are considered.

Example 1:

A prime example of currency exchange rates affecting someone adversely was shown by Channel 4 in their Grand Design programme hosted by Kevin McCloud. You may remember David and Greta’s Huf house, a German post-and-beam house, designed by architect Peter Huf. Here, the estimated budget for the build was £450,000, the final cost being £495,000. Yet the price charged by Huff in euros remained the same. It was the 10% slippage in the exchange rate that cost David and Greta an extra £45,000. Had they fixed the rate at the time of purchase, this could have been avoided.

C. Regular Payment Plan
This option is most beneficial for those of you who have regular payments to make to France which involve currency transfers each time, for example mortgage payments or pension payments. Competitive exchange rates can also be fixed here, usually for up to maximum of two years, thereby reducing any worry you might have over what each payment might be.

The minimum amount allowed to be transferred is £250 per month.

D. Orders
There are two kinds of orders available, Stop Loss Orders and Limit Orders. These are generally used by people who are not in a rush to transfer money or buy currency, and can wait for an optimum rate to thereby save money.

Stop Loss Orders enable you to fix a minimum rate at which the euro is bought or sold. So if the exchange rate was to drop below this level, you would not be effected as you have protected yourself by guaranteeing a minimum exchange rate.

A Limit Order meanwhile allows you to set a optimum exchange rate at which, if the rate is achieved, your currency can be purchased.

Quite often these two orders are run in conjunction with each other, giving you more predictable currency transactions as you have set upper and lower thresholds at which currency can be bought or sold.

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