Foreign Exchange for You, Buying an Overseas Property, Forward Contract

Forward contract: How it works when you’re buying

In January 2010, Mrs Connor agreed to buy a property in Florida. The sale was due to complete in April, when the payment of $410,000 had to be paid.

She was concerned that the exchange rate might move against her during those four months, and decided to fix the exchange rate in advance. It let her know exactly how much the property would cost on the day.

In January she fixed a rate of 1.6220 to buy €410,000, and paid us a 10% deposit.

Between January and April the exchange rate moved between 1.6450 and 1.5120. On the day her payment was due the rate was 1.5190.

If she had waited until April and exchanged her money at the prevailing rate, the property would have cost an extra £17,140.07.

US dollars

Sterling

Cost of property in January with forward contract

$410,000

£252,774.35

Cost of property in April without a forward contract

$410,000

£271,164.02

Difference/saving

£17,140.07

The rate could have improved by April too, in which case the property could have been less expensive. But Mrs Connor had budgeted to buy the property at a rate no worse than 1.60 – and fixing the rate in advance provided her peace of mind.

To find out more, call us on 0800 783 6022, or +44 20 7801 9080. You can also ask us to call you back.