Dollar v Sterling - exchange rate

[acisman]

I guess there are many our there who are starting to get a little worried about the current exchange rate, which isn't look to good if you will be changing many thousands of pounds into dollars .

I have read that the forcast for early new year is that the dollar will fall against the pound and the rate will be nearer 3 dollars to the pound. This was comfirmed by HIFX and Westpac at the expo.

By far the most interesting fact I had confirmed at the expo is that the use of a forward contract with an foreign exchange provider like say HIFX can protect you to a degree.

It works like this. You register with an FX company and state what rate you would like to achieve and how much you would like to exchange. Let's say you want a rate of $2.80 when the current rate is $2.50. The company will then hold your application and when they can achieve $2.80 they notify you, at which time you pay 10% of the total to be transferred. The rate is now guaranteed, so even if the rate falls again, you know that you will get $2.80 at the time you have stated you wish to transfer large sums. This is very useful for budgetting purposes.

Of course there is a possibilty that $2.80 cannot be achieved, but you pay nothing until it is, or until the time comes to transfer the funds, when the company will tell you want is the best they can achieve. They will also keep in touch with you and offer advice above the liklihood of $2.80 be achievable, in the future and it may be that at $2.75 to can agree to accept that rate.

The only gamble is that if you look and get $2.80, the rate improves beyond that. But I guess that is the gamble we must all take. Of course another option is to split your potential transferable fund into 2 or 3 parts, asking for different rates and perhaps using different companies. There are no charges for using a forward contract.

I would add that I have no connections with any FX company and these comments are purely what I have read and had confirmed at the expo. I have certainly had some worries about exchange rates (tourist rate $2.48 today), but I rest a little easier now.

Dave

[Rimbo]

Acisman,
read this thread as it will really help. About half way down Karl explains his plan very well. it highlights some of the things you say.

i must say, lately we too have watched the doller get quite strong. Just hope the forcasts for a pound fight back are correct.

http://www.enz.org/forums/viewtopic.php?t=61

john

[acisman]

Hi John

Yes that seems to be along the same lines and is useful.

I forgot to mention that another alternative, particularly if you are selling a house over here and the sale goes through without enough time to take real advantage of a forward contract, is to put your sterling into a foreign currency account in a NZ bank I am not too sure above offshore accounts- need to read up on this). You will get interest on the money ( if it is more that £4000) and you can then pick and choose when you change it to NZ dollars.

Dave

[markkellaway]

While at the Sandown show earlier this year I spoke to a company who bought and sold cash for a very small fee, they were almost giving the official exchange rate. I'll try to look out the details if I can find them.

10% seems a huge chunk to pay out to me, if the rate gets to $3.00 you'd still only get $2.7 net, or am I having a brain dead moment?

Cheers,

Mark. :P

[acisman]

Hi Mark

No it would not cost you anything. Say you had £20K you wished to change to NZ dollars in March 2005. You would make a forward contract now and ask for $3 to the pound. If in December the FX company could obtain $3, you would then be asked to pay £2K at that time. In March you would then pay the balacne of £18K and at that time $60K would be deposited in the NZ account you nomination.

There would be no charge to you. The FX company would make their money from utilising your £2K between December and March.

If $3 to the pound was not achieveable by March 2005, the FX company would keep you informed of exchange rates and you may have to settle for something slightly less. However you will be able to watch exchange rates and decide accordingly.

If you have a large amount of money to exchange on say the sale of a house, it may be advisable to have 3 or 4 forward contracts with increasing "required exhange rates" such as $2.80, £2.90 & $3 etc. Of course the only restriction is your ability to pay 10% when the required rate is achieved.

This method takes the worry out of what will the rate be when I have all my money to change to NZ dollars.


Dave

[markkellaway]

Hi Dave,

That's exactly as I had heard from the company at Sandown, thanks for clarifying. I misunderstood that the 10% you mentioned was a charge.

This certainly seems to be the way to go, thanks for helping me to avoid searching for the notes!

Mark. :P