What does the increase in the €/£ exchange rate mean to you?

What does the increase in the €/£ exchange rate mean to you?

The last few months have been good for sterling relative to the euro. At one stage we even exceeded a rate of €1.21/£1 - the last time we saw this was in late 2008.

But have you sat down and worked out what this could mean to you? And do you know how to take advantage of this rate and minimise your “downside risk”? The benefits don’t just apply to the larger payments - regular and/or smaller one-off payments can benefit too.

If you started looking for a property in the Euro zone in 2009 you would more than likely have been budgeting at an exchange rate of between €1.05 to €1.10/£1. This means that every €100,000 you were expecting to spend will now cost you £10,000 less than you first thought!
A saving like that could pay for your white goods, a new car or perhaps an even bigger property.

And for those of you who originally budgeted for a rate above €1.20/£1, you may well find that the drop in house prices means that the cost in sterling terms is very similar to what you at first had budgeted. Maybe it’s a case of dusting off those cobwebs and revisiting your dreams!

And, as mentioned, this doesn’t just apply to larger payments. Regular transfers of pensions could suddenly net you 10% more or mortgages could cost you 10% less. And such amounts can make a huge difference to the way you are able to live.

The question is, of course, will the exchange rate stay at these exalted levels? Who knows? Market analysts say yes, given the problems in the Euro zone, but we also have to remember the problems we have here in the UK and the huge government budget deficit. Things could change very quickly…

How do you guard against this and minimise the chance of getting less for your sterling as the rate returns to €1.10/£1?

In an ideal world, if I was committed to buying a property, I would want to buy my euro’s sooner rather than later, so that I could secure the reduced sterling cost. However, I wouldn’t want to pay it for it all now. That sounds a trifle unrealistic, but it can be done, using something called a forward contract.

You simply agree the amount of euro you are buying and the exchange rate you are happy with. This in turn means you will have established the sterling cost and the time by which you will pay for the funds in full. A deposit of up to 10% will secure the funds being bought on your behalf.

The same principle can be applied to regular payments, where you can fix an exchange rate for the next twelve months and draw on it monthly.

Give us a ring and talk though the different options. This will remove the downside risk by buying some, if not all, of your euro’s ‘forward’.


Jargon Buster – Downside Risk
"Downside risk" - the possibility that exchange rates will move in such a way that you suffer an additional cost and there is nothing worse than suddenly having to find an extra amount of sterling or receiving less than you had originally expected. Also it seems to happen when all indicators seem to point to the opposite happening! That is why buying/selling forward is excellent for minimising downside risk


UK Banking Systems – the simple made so difficult
Just thought it worthwhile to share an article from this weekends press on the UK banking system. Never ceases to amaze me how the simple is made so difficult. You would think that the "faster payments" system would be fairly universal in how the UK banks implemented it. Clearly not.

But having said that it makes it so much easier for people to understand why we exist as a company bringing simplicity to international transfers plus the ability to talk to someone who can help rather than having to spend half a day trying to find someone who may be able to help.

http://news.bbc.co.uk/go/em/fr/-/1/hi/business/10297758.stm


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