For successful Currency Exchange dealings in our experience, Your first task, is to choose your Lawyer and your Spanish Real Estate Agent, and to find a reputable and helpful foreign currency provider to assist you to transfer your pounds to Euros. It is also important to ensure that the service that you recieve is simple enough and effective enough to save you money when you transfer your money abroad, when buying property in Spain. There are many banks and other independant companies in the Spanish Market Place which provide a good and fair service, and look after all your curreny needs.
Can Currency fluctuation affect your buying power?
If there is a property for sale in spain that you would like to purchase and it is to be sold immediately, with the agreed price of 150,000 Euros, for which the bank quotes you an exchange rate of 1.45 to £1, which equals £103,450. This whole process usually takes a month to finalise after giving your bank the permission to buy the 150,000 Euros. However, the bank then asks for £106,000 , £2550 more that you you had anticipated, because of currency fluctuation.
During the month since the bank quoted its exchange rate as 1.45 Euros to the £1 the Euro has become stronger as a result of currency fluctuations, this could be worse and could happen a lot faster too.
Many people are unaware of the extent that currency fluctuations in the foreign exchange market can be so adverse in such a short period of time. Even if you were aware of the risk, people are often unaware that you could protect yourself against it. No one at the bank mentioned the subject. No-one referred to 'stops' and 'limits', the automated mechanisms used by big business all the time to protect their money when undertaking foreign currency exchanges. Nor were you informed that you could have found a more advantageous rate than 1.45 to the £1 in the first place.
Can you get the best currency exchange rates?
Let's look at this extremely-important currency exchange rate. There are lots of foreign exchange company's and banks to choose from, and the rate offered to you by your bank is not necessarily the best. In fact, it will almost certainly not be the best, purely because the larger banks make their money from dealing in corportate millions, not the kind of meny that buys a beautiful property for sale in spain. It literally pays to shop around for the best rate.
Can you protect your capital?
The scenario shown earlier, shows the volatility and importance of finding the right foreign exchange rate with the right company, with a goal to save you money.
How can you protect your capital against such an eventuality?
Your foreign currency provider should offer you all the financial mechanisms like 'stops', 'limits', 'forward contracts' which corporations use automatically to protect their capital. They should also show you how they work and provide examples and assist you in every way possible in your currency exchange transaction.
Buying outright: Property deals by their nature take a certain period of time. However, should there be an opportunity to seize at short notice, your foreign currency provider can carry out a spot transaction. The currency is bought in today's market for cash.
Buying properties under development
Buying a property outright is reasonably simple, However, what happens if you are buying a property in Spain that is no more than an architect's blueprint and a developer's plan? You will be asked to pay a deposit, and then to make three or four subsequent payments several months apart, you may know the exact date and the amount for each payment and you may not.
The market may move in your favour during the months it will take to conclude the deal, by the same token, it may move in the opposite direction. Unless you take the relevant precautions at the outset, you are risking your capital.
How can you avoid the gamble?
'Forward' transactions
You arrange with your foreign currency provider to use the mechanism that all big businesses use to protect themselves when exchanging large sums of money: you use what is known as a 'forward transaction'. There are two versions: the fixed forward and the forward Time option. This is how each one works:
Forward pricing in practice: the 'fixed forward' Let's deal with the fixed forward. which is a contract your foreign currency provider should suggest, this however only works if you know in advance the dates on which you need to make your payments, and the amounts in every case.
for example, you must pay a deposit of 15 per cent of the price of the property within the next few days; another 35 per cent in 3 months' time; another 25 per cent six months from now; and the balance at nine months. You give your foreign currency provider all the relevant information, and he or she will be able to offer a guaranteed price for each of those staged payments.
Forward pricing in practice:
the 'forward Time option' If you know little more than the final price of the property and the developer has promised your house will probably be ready to move into in eight months' time. In this case your foreign currency provider is able to offer you a fixed rate to guarantee a price in the future, without restricting you to a specific date. For example, having the ability to draw 150.000 Euros between September 1st and September the 15th.
Finally, ensure that the foreign currency provider you deal with keeps the whole process as simple as possible. Do not let technical jargon come in the way of your dealings with a currency provider because in reality the whole process be it spot deals or forwards is actually reasonably simple. Our suggestion is to avoid foreign currency providers that attempt to make the process sound more complicated than it really is to make you think that you need them. All the different contracts mentioned above are simple basic products and their strength in obtaining the best rate should be communicated to you in a simple transparent manner.
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