Advice On Currency Exchange
November 14th, 2007
If you are buying a house in Spain you will need to pay for it in Euros and there are a number of different ways of doing this. You can purchase Euros through your local bank in the UK, which, although is an easy option, may not be the most cost effective. You need to compare exchange rates and fees, and your local bank is not always the most competitive. Another way of purchasing Euros is through a currency broker, whose business is to buy and sell foreign currencies. There are a number of options to consider when purchasing foreign currency and outlined below are few of the main types of transactions available. Spot Contract – Typically when purchasing a property in Spain you will be required to pay a deposit fairly quickly or, for full payment if the funds to pay for the transaction are available. In this situation a Spot Contract is usual. This is when you purchase a currency at the prevailing exchange rate at the time of the transaction. So you ring your broker, he gives you a rate, and if you are happy with this you purchase the currency. You will normally be given a couple of days to pay for this transaction.
Forward Currency Contract – If you are buying an off-plan property that won’t be completed immediately, it is possible to fix the exchange rate so that you know exactly what the rate will be when it comes to the time of completion. This can be fixed for up to two years or more ahead. You will normally need to pay a deposit to secure a forward rate. Fluctuations in the market can make a big difference in the price you pay when completing a sale. The following is an example of when this type of contract is useful: You decide to buy an off-plan property for €300,000 on 1st February 2007. At today’s exchange rate, this would cost you something like £205,000 using the exchange rate at 1st February 2007. Let’s just say you need to make staged payments over the next 18 months. If you used a forward currency contract, the price you would end up paying for you property would remain at £205,000. If using a spot contract you could find that with fluctuating currency rates, you could end up paying more or less than £205,000, so you have to weigh up the risk. This is fine if you end up paying less but not so great if you have to pay more. Forward currency is an excellent way of eliminating this type of risk.
Time-Option Forward Contracts allow greater flexibility in paying. For example, a developer may give you a date of March 2008 as a completion date, but as typically happens in Spain, completion is delayed and your property is not completed on time. A dealer may recommend that you set a date for your forward contract of July 2008, leaving you free to either complete the purchase at any time before July 2008. A Limit Order allows you to set a rate at which you would like to exchange your currency. For example, you ring your dealer and say that you would like to exchange £100,000 at a rate of 1.49. The broker would then monitor the market on your behalf and if that rate could be achieved, would purchase the currency on your behalf. This is important for if you want to exchange a large amount where small fluctuations could have huge implications.
Watch out for hidden charges that could include:
· A sending fee – your bank/broker in the UK may charge you a transfer fee to send money to a Spanish bank.
· Receiving fee – the receiving bank in Spain may charge you a fee for receiving money from the UK and these can be quite costly.
· If you find a bank/broker who doesn’t charge extra fees, you may find that you are not getting such a competitive rate of exchange.
Story from roundtownnews.co.uk
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