Contract- protection from negative rate movements in the
A UK client
was emigrating Europe in 6 months time and he was
concerned the Euro would fluctuate before he moved his
funds, meaning he would get less Euros for the £130,000
he was due to transfer.
World First arranged a forward
contract which enabled him to secure a rate his transfer
six months later. On the transfer date the rate had
fallen to the point that if he hadn't secured the rate
six months earlier, would have meant he received over
14,000 euros less for the same amount of sterling.
Currency Option- protection from negative rate movements
whilst allowing access to improvements in the rate.
A UK client
was due to complete the purchase of a €400,000 property
in France in six months. She wanted to protect herself
in case the rates moved against her, however she felt
Sterling would strengthen against the Euro before the
completion date and did not want to miss out on this
improvement if that was the case.
World First arranged a
Currency Option which enabled her to secure a rate of
1.1307 on 22nd Jan 2010 for the completion
date six months later - a total cost of £353,763.
She was therefore protected at this level and knew that
regardless of any negative rate movements her property
would not become more expensive. However on the
completion date (11th June 2010) the rate had
improved to 1.2014.
As she had booked a currency option
she was allowed to transfer all of her funds at the
improved rate, meaning the property now cost her
£332,945;a saving of £20,818, whilst having been fully
protected if the rates had moved against her.
note that not all brokers can offer Currency Options as
they require additional FSA