subject: Just what is currency volatility costing you? [print this page] Just what is currency volatility costing you?
The united kingdom has long been a hotbed of investors with many different investors looking overseas to buy "cheap property" in emerging markets. However, great britain pound has come under significant sustained pressure due in the main to varied comments from the Bank of England and the expense of assets overseas has grown for many people. So what else could you do in order to protect yourself?
Most people are beginning to look at the subject of forward contracts which assist you to fix the exchange rate at which you acquire your foreign currency thereby supplying you with some stability as and when you decide to go ahead with your overseas purchase. If you think about that the exchange rate relating to the UK pound and the US dollar has fluctuated by around 30 % during the last 2 years, you'll notice potentially substantial benefits to fixing your currency rate when having a debate about investments that could cost thousands and thousands of pounds.
Of course you will find a risk that the exchange rate may move against you at some point if you do fix your currency rate, but at least this gives you some stability when acquiring an overseas asset, something which is ever more vital in the current marketplace. The biggest mistake businesses and individuals make is they become gamblers once a currency transaction is involved. When ever we buy anything generally it provides a fixed cost. You agree an amount and hand over the relevant amount. When the payment needs to be paid or received in another currency all common sense departs. Therefore fixing your costs at the point of sale defines the total outlay that you are happy to pay or receive. This can also be achieved through the use of international priority payments.
For a business that imports or exports in the current climate pricing for the supply of goods overseas on a 30-60-90 day invoice cycle must be a nerve racking experience, if you do not have the foresight to manage the commercial risk related to currency Market volatility over these periods.
If you have assets abroad and are thinking with the low exchange rates it is no longer a viable option. Repatriating and selling a property for example, initial thoughts are I am not going to get what my property is worth. If you stop, take a breath and think, the exchange rate at the current level in GBPEUR is 1.0782, which is twenty five per cent better for you as the average buyer in the Euro zone purchased at 1.4300. So what you lose on the property value you can make back on the foreign currency exchange rate. To secure the rate at lower levels forwards work both ways for a 10 per cent deposit you can secure the rate when selling currency also.
To learn more about foreign currency exchange and the possibilities it opens up please visit the Foreign Exchange Ltd website
