forward contracting on the exchange rate
Jul 28th 2005, 8:51 pm
#1
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forward contracting on the exchange rate
Hi gang,
As the rate is,nt at it,s best can someone tell me exactly what forward contracting is.If i,m right is it where you book a rate when it,s at a certain figure your happy with and then it stays like that even if it goes down.I,ve always worked my finances out at a rate of $2.50 even when it was alot higher.At the mo it,s obviously lower you can,t miss it what with all the threads about it can you.I,ve also since learned that $2.40 is long term average so i would be happy with average and assuming it gets there how does forward contracting work.
dave
As the rate is,nt at it,s best can someone tell me exactly what forward contracting is.If i,m right is it where you book a rate when it,s at a certain figure your happy with and then it stays like that even if it goes down.I,ve always worked my finances out at a rate of $2.50 even when it was alot higher.At the mo it,s obviously lower you can,t miss it what with all the threads about it can you.I,ve also since learned that $2.40 is long term average so i would be happy with average and assuming it gets there how does forward contracting work.
dave
Jul 28th 2005, 9:00 pm
#2
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Re: forward contracting on the exchange rate
Hello Dave
You can either ring a fx company and book a rate now that you are happy with and say you will pay for it later less a 10% deposit, or you can set a rate that you wish to achieve.
I booked a rate at 2.5432 last december which was fortunate as the rate has plummeted since. I did have to pay 10% up front so couldnt afford to request the total amount and really only a fraction of my requirment Bummer!! I should have begged and stole but hey ho! i did get a good rate for some. However i havent paid for it yet as the house has not sold yet. I keep advising hifx that i need to push it out ie delay payment.
I havent set a rate before but i think it is as you suggest. im sure others will advise you.
hope this is of some help
irene
You can either ring a fx company and book a rate now that you are happy with and say you will pay for it later less a 10% deposit, or you can set a rate that you wish to achieve.
I booked a rate at 2.5432 last december which was fortunate as the rate has plummeted since. I did have to pay 10% up front so couldnt afford to request the total amount and really only a fraction of my requirment Bummer!! I should have begged and stole but hey ho! i did get a good rate for some. However i havent paid for it yet as the house has not sold yet. I keep advising hifx that i need to push it out ie delay payment.
I havent set a rate before but i think it is as you suggest. im sure others will advise you.
hope this is of some help
irene
Jul 29th 2005, 11:17 am
#3
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Re: forward contracting on the exchange rate
Originally Posted by chippy dave
Hi gang,
As the rate is,nt at it,s best can someone tell me exactly what forward contracting is.If i,m right is it where you book a rate when it,s at a certain figure your happy with and then it stays like that even if it goes down.I,ve always worked my finances out at a rate of $2.50 even when it was alot higher.At the mo it,s obviously lower you can,t miss it what with all the threads about it can you.I,ve also since learned that $2.40 is long term average so i would be happy with average and assuming it gets there how does forward contracting work.
dave
As the rate is,nt at it,s best can someone tell me exactly what forward contracting is.If i,m right is it where you book a rate when it,s at a certain figure your happy with and then it stays like that even if it goes down.I,ve always worked my finances out at a rate of $2.50 even when it was alot higher.At the mo it,s obviously lower you can,t miss it what with all the threads about it can you.I,ve also since learned that $2.40 is long term average so i would be happy with average and assuming it gets there how does forward contracting work.
dave
A forward contract is simply where you buy currency on credit - You will agree a price based on that of the day you buy, and then the FX company puchase the currency for you there and then. You need to pay them about 10% of the purchase cost as a deposit, and then pay up on completion of the contract. As far as I can see it's just the same as a spot buy, only you don't pay for it immediately.
I don't think that they will let you make a forward contract when the rate isn't that high - If today's rate is, say 2.30, then you can't forward contract for 2.50, as the rate may never get that high again, so you would only be able to FC at 2.30. This is fine if the rate falls, but you may loose out if it then climbs back to say, 2.40, as the currency is already bought, and you will still have to pay for it at the lower rate.
I hope that helps,
S
Jul 29th 2005, 12:31 pm
#4
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Location: Carramar, Perth
Posts: 6,241
Re: forward contracting on the exchange rate
Originally Posted by Swerv-o
Hi Dave,
A forward contract is simply where you buy currency on credit - You will agree a price based on that of the day you buy, and then the FX company puchase the currency for you there and then. You need to pay them about 10% of the purchase cost as a deposit, and then pay up on completion of the contract. As far as I can see it's just the same as a spot buy, only you don't pay for it immediately.
I don't think that they will let you make a forward contract when the rate isn't that high - If today's rate is, say 2.30, then you can't forward contract for 2.50, as the rate may never get that high again, so you would only be able to FC at 2.30. This is fine if the rate falls, but you may loose out if it then climbs back to say, 2.40, as the currency is already bought, and you will still have to pay for it at the lower rate.
I hope that helps,
S
A forward contract is simply where you buy currency on credit - You will agree a price based on that of the day you buy, and then the FX company puchase the currency for you there and then. You need to pay them about 10% of the purchase cost as a deposit, and then pay up on completion of the contract. As far as I can see it's just the same as a spot buy, only you don't pay for it immediately.
I don't think that they will let you make a forward contract when the rate isn't that high - If today's rate is, say 2.30, then you can't forward contract for 2.50, as the rate may never get that high again, so you would only be able to FC at 2.30. This is fine if the rate falls, but you may loose out if it then climbs back to say, 2.40, as the currency is already bought, and you will still have to pay for it at the lower rate.
I hope that helps,
S
Jul 29th 2005, 12:47 pm
#5
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Joined: Apr 2005
Posts: 44
Re: forward contracting on the exchange rate
Dave,
one approach to this is to forward contract half of what you expect to exchange at some future date. Say you expect to exchange £50K in 6 months time, then you might forward contract to exchange £25K at today's rate. This way, if the rate goes down, you still benefit, but not by as much as you would if you had forward contracted the full £50K. If the rate goes up, you still lose, but not by as much as you would if you did no forward contract at all.
cheers,
Ian
one approach to this is to forward contract half of what you expect to exchange at some future date. Say you expect to exchange £50K in 6 months time, then you might forward contract to exchange £25K at today's rate. This way, if the rate goes down, you still benefit, but not by as much as you would if you had forward contracted the full £50K. If the rate goes up, you still lose, but not by as much as you would if you did no forward contract at all.
cheers,
Ian
Jul 29th 2005, 11:24 pm
#6
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Re: forward contracting on the exchange rate
Originally Posted by Swerv-o
Hi Dave,
A forward contract is simply where you buy currency on credit - You will agree a price based on that of the day you buy, and then the FX company puchase the currency for you there and then. You need to pay them about 10% of the purchase cost as a deposit, and then pay up on completion of the contract. As far as I can see it's just the same as a spot buy, only you don't pay for it immediately.
I don't think that they will let you make a forward contract when the rate isn't that high - If today's rate is, say 2.30, then you can't forward contract for 2.50, as the rate may never get that high again, so you would only be able to FC at 2.30. This is fine if the rate falls, but you may loose out if it then climbs back to say, 2.40, as the currency is already bought, and you will still have to pay for it at the lower rate.
I hope that helps,
S
A forward contract is simply where you buy currency on credit - You will agree a price based on that of the day you buy, and then the FX company puchase the currency for you there and then. You need to pay them about 10% of the purchase cost as a deposit, and then pay up on completion of the contract. As far as I can see it's just the same as a spot buy, only you don't pay for it immediately.
I don't think that they will let you make a forward contract when the rate isn't that high - If today's rate is, say 2.30, then you can't forward contract for 2.50, as the rate may never get that high again, so you would only be able to FC at 2.30. This is fine if the rate falls, but you may loose out if it then climbs back to say, 2.40, as the currency is already bought, and you will still have to pay for it at the lower rate.
I hope that helps,
S
If you do agree to the fc how long does that agreement last.Also what happens if you agree to fc and then you can,t deliver for example if your house sale dos,nt go through.
cheers dave
Jul 30th 2005, 12:12 am
#7
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Re: forward contracting on the exchange rate
Originally Posted by ianandlou
Dave,
one approach to this is to forward contract half of what you expect to exchange at some future date. Say you expect to exchange £50K in 6 months time, then you might forward contract to exchange £25K at today's rate. This way, if the rate goes down, you still benefit, but not by as much as you would if you had forward contracted the full £50K. If the rate goes up, you still lose, but not by as much as you would if you did no forward contract at all.
cheers,
Ian
one approach to this is to forward contract half of what you expect to exchange at some future date. Say you expect to exchange £50K in 6 months time, then you might forward contract to exchange £25K at today's rate. This way, if the rate goes down, you still benefit, but not by as much as you would if you had forward contracted the full £50K. If the rate goes up, you still lose, but not by as much as you would if you did no forward contract at all.
cheers,
Ian
Very good point,to be honest i had to re-read your thread a few times to work out my figures from your formular.I,ve had an amount of Aus $ i,d be happy with and i think i could use your advice to help me to get that.
dave
Jul 30th 2005, 3:49 pm
#8
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Location: Chippendale, Sydney
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Re: forward contracting on the exchange rate
Originally Posted by chippy dave
Hiya swerv-o,
If you do agree to the fc how long does that agreement last.Also what happens if you agree to fc and then you can,t deliver for example if your house sale dos,nt go through.
cheers dave
If you do agree to the fc how long does that agreement last.Also what happens if you agree to fc and then you can,t deliver for example if your house sale dos,nt go through.
cheers dave
I asked them what would happen if I booked a contract and then the house sale fell through and they said that they would sell the currency back for as much as they could, and that I (you) would be only liable for the difference between the two dates. This was only verbally though, so I'm not sure how or if they would honour this, being a naturally suspicious sort of a person. HIFX can be a little pushy for my liking, so don't let them bully you into making a purchase if you don't think it's right for you.
S
Jul 31st 2005, 8:26 pm
#9
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Re: forward contracting on the exchange rate
Thanks everyone far more clearer now.
dave
dave
Aug 1st 2005, 7:18 am
#10
Forum Regular
Joined: Apr 2005
Posts: 44
Re: forward contracting on the exchange rate
Originally Posted by chippy dave
Hello Ian,
Very good point,to be honest i had to re-read your thread a few times to work out my figures from your formular.I,ve had an amount of Aus $ i,d be happy with and i think i could use your advice to help me to get that.
dave
Very good point,to be honest i had to re-read your thread a few times to work out my figures from your formular.I,ve had an amount of Aus $ i,d be happy with and i think i could use your advice to help me to get that.
dave
I am no great expert, but send me a PM and I would be happy help where I can. Sorry for the slow reply: I tend not to use the forum at the weekend.
cheers,
Ian
