Just as with our business clients we treat individuals…..well as individuals. Everybody has different requirements, though on the surface they look similar, we all look for something different in our transactions.
There are those clients who want us to walk them through each step.
We have others we only speak to on an infrequent basis and some that only want contact if they have an issue.
We are happy to work in whichever way is comfortable for our clients, we can be as much hands-on as required or indeed keep a discreet distance.
Our clients are based all over the world, sending money overseas to buy property or high-value goods, to pay for their children’s education fees, receiving pensions from overseas or working abroad and wanting to send money home.
As with businesses, there are tools we are able to use to help our clients.
Forward contracts are very useful in two scenarios, one of which is buying a property or high-value goods overseas, usually, there is a deposit to be paid and then a gap before completion of the sale.
In this time gap currencies can fluctuate and with high-value goods even a small change can mean substantial extra costs.
A UK client buying a house in Europe, the property costs 200,000 Euros, the initial deposit is 20,000 Euros, this is paid in January 2016 and the rate achieved was 1.40, the deposit costs £14,285.
The house sale is completed and the remainder is sent over but the rate has dropped to 1.25, 180,000 Euros costs £144,000.
If we had set up a forward contract at the time of purchase we would get a rate of 1.38, which would have meant a cost of £144,927 for the full 200,000 Euros, a saving of £13,358.
Enough to build a pool as we have been told many times.
Of course, hindsight is a wonderful thing but if a client is satisfied with a rate and it works with the budget then it makes sense to fix that rate and not have to worry about what the currency markets are doing in the meantime, buying a property is stressful enough without adding currency fluctuation into the mix.
A second example is a client receiving a monthly pension or payment, especially for those living on a budget, a forward contract would help ease the uncertainty.
A UK expat living in the EU is receiving £1000 per month into a UK bank account from a pension. Every month it is transferred by their bank, they charge £25 for the pleasure of transfer and then offer a poor rate of exchange, by the time the client gets the payment it is valued at 1160 Euros, £975 (after £25 deducted for the transfer) times a rate of 1.19, when the rate stands at 1.25.
We step in and arrange through one of the companies we work with for the money to be sent to them by standing order each month. They receive £1000 and convert it either at the rate each month or look at fixing a rate for 12 months.
A fixed rate would be around 1.225 and so the client would receive 1225 Euros with no bank charges, an extra 65 Euros per month.
When living on a tight budget this could be a weeks shopping.
A forward contract allows the client to budget over a period of time knowing exactly what is coming in each month for the foreseeable future.
The trick with forward contracts is not to think greedy, because the markets move both ways. Sometimes you win sometimes you lose.
But for peace of mind if the rate is workable, take it and don’t worry about losing out on a little more because it could quite easily have gone the other way and then the budget needs tightening.