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The Currency Perspective ­

For those of you that have or are thinking of buying a property abroad you will know that currency fluctuations can be extremely volatile and transferring large sums of money can be fraught with stress. From when you initially make an offer on a property to the time of completion the exchange rate can swing significantly and sometimes it makes that dream home overseas considerably more expensive than you had budgeted for. This has certainly been the case in the last couple of years with a particularly turbulent pound that has weakened significantly against the Euro.

I believe that there are four main factors that have major effects on rates and I call it the “Currency Compass.” The two main contributing factors are firstly economic data and secondly the political stability of a country.

The release of economic data such as interest rate decisions to employment figures can have an enormous effect on a currency pair.  We saw this earlier this year in the lead up to the UK general election and the subsequent result of a hung parliament, when a country is in the midst of a general election you tend to find that a country is at its most unstable politically. One comment from an MP can sometimes send exchange rates spiralling out of control.

The two newest equations to the compass are unforeseen circumstances such as earthquakes and acts of terrorism. There is little that can be done about these two factors, except perhaps avoiding a knee jerk reaction as often currencies fall sharply before rising again in the immediate aftermath of such events.

Despite the economic problems the UK is facing there have been opportunities to capitalise on gains. Over the last year the pound has had a high-low swing of over 11% against the euro. In real terms if you were exchanging £200K at the high point you would have gained an extra €28,500 compared to the low.

So what can you do to protect yourself and get maximum bang for your buck if you have either a large purchase looming or a regularly transfer over to Menorca?

The traditional process is to simply approach your bank without timing the transfer and many are unaware that this normally includes a mark up of anything up to 4%. However there are brokers out there that undercut the banks significantly as well as adding additional services to assist you to buy at the peak. Many focus on a friendly personal service that always delivers a saving compared to the bank. I work for one of these brokers, a firm called Foreign Currency Direct PLC that has been trading for over 10 years and been awarded the best currency provider for 3 consecutive years by The Sunday Times.

Currently one of the most popular currency tools our clients are using is a forward contract. This is where clients can secure a rate for up to two years in advance, which means you are protected from any adverse currency movements. You can place this order at the time you need to put a deposit down on a property or when you are scheduling your finances through 2011. This may be the best solution to give you the peace of mind on your currency exchange in such volatile times.