WheelsOfSteel

I was looking around at what FX rates were doing what and where sterling is currently and put together a possible scenario which I may use. Thought I would share it with you for what it's worth.

The principle is very common and nothing complicated, but does expose you to ccy risk.

Anyway, instead of bringing over the GBP now to NZ/Oz you could consider the following:

Potential rise in USD againt current SPOT conversion

Assume now 1GBP buys 1.8 USD and in six months 1GBP buys 1.6USD.

On 70,000 GBP we get now 126,000 USD. If we were to than SWAP back our USD for GBP in 6 months @ 1.6 then

126,000 would buy us 78,750 USD a gain of 8,750 GBP or perhaps 25-26,000 NZD. Six months earning very low interest on the USD deposit could loose us about 1.050 at ZERO % which is very unlikely a I would get some interest as I would stick it in a call account at worst. Obviously, the longer it is on deposit the less you make.

Potential USD NZD increase in 6 months

Currently 126,000 USD will buy you about 185,000 NZD @ 1.47%. If they return to the rates they were 6months ago (1.75) then you would gain about 35,000 NZD. If they increased to 1.85 where they have also been the gain would be about 36,000 NZD.

This compares with a gain against GBP of 8,750 GBP or at 3% 26,250 NZD

Scenario 1 : 26,250 Scenario 2 : 35,000 Difference of 8,750 NZD

Converting 70,000GBP directly to NZD @ 3 to 1 = 210,000 NZD
Converting via USD as above = 161,000 USD * 1.75 = 281,750 NZD

Converting 70,000 GBP at 2.7 = 189,000 NZD

Disclaimer:
This is mearly my rough ideas and not meant as investment advice.

Megalania

You've got 50/50 minus brokerage and interest differential.

WheelsOfSteel

Why would I need a broker. It is a straight deposit. All the spot rates are rough at best.

Unless you are going to deal with a shark your spread won't be massive on the spot rate.

Don

Your biggest assumptions are about which way the currencies will move and in what timeframe.

Most so-called currency experts are predicting the NZD to rise a bit more against a basket of currencies then fall back a fair amount.

Most see the USD to fall further against that same basket of currencies, stabilize then start rising again after the US election.

Most see the GBP as over-valued against a basket of currencies.

I would see us getting into USD (I prefer to spread the currency risk around a bit as far as our dosh is concerned) but I don't see the current point as anywhere near the lowest level. Fed announced no change in interest rate yet again yesterday and until it starts rising (differential vs other key countries' rates) don't expect anything much more than short term fluctations but intact trend (declining value of USD).

Megalania

Brokerage / spread tiny in comparison to exchange rate volatility.

Good LUCK in you forex PREDICTIONS.

I suggest you diversify your currency holdings in proportion to the probability of your needing money in specific currencies.

Florida_03

The stars at night
Are big and bright
Deep in the Heart of Texas
The prairie sky
Is wide and high
Deep in the Heart of Texas;
The sage in bloom
Is like perfume.
Deep in the Heart of Texas
Reminds me of
The one I love
Deep in the Heart of Texas.

WheelsOfSteel

>>Your biggest assumptions are about which way the currencies will move and in what timeframe.

Obviously! Nobody has a crystal ball here and you can stay in the market for as long or short as you want as you hold the underlying cash as oposed to a future/option on future, etc.

WheelsOfSteel

>>I suggest you diversify your currency holdings in proportion to the probability of your needing money in specific currencies.

I suggest that one shouldn't do anything as risky as this if they need the cash now or sometime soon.

But if they can afford to have a punt, you could do a alot worse.

Or you could just stick it in the Postoffice acct.

WheelsOfSteel

>.Brokerage / spread tiny in comparison to exchange rate volatility.

I should well hope so else I wouldn't even bother thinkng about it!

Don

Right - I'd be fairly sure that GBP1 = USD1.82 will turn into a USD1.50 rate within a few years and that's a cool 16% increase in value without trying too hard, shame you can't get a decent interest rate on USD though.

WheelsOfSteel

Yes, that's the problem. The longer you have the money on deposit in USD you are getting a shite rate of interest. Stirling isn't great but at least you can pin it to the base rate.

Still, you would have to be in USD several years before you started loosing money against the depot in say sterling!