Our goal is to make sure you have all the right information and tools you need to protect yourself from fluctuating exchange rates. Your currency options depend on whether you have access to some or all of the funds you wish to transfer:
I have access to all of the funds – what are my options?
If you have access to all of the funds, you have two choices: one risk free and one high risk.
The risk free solution would be to buy all of the currency now, thus fixing the cost at the outset. This is called buying currency for 'spot'. You can then deposit the purchased currency to earn some interest and send future payments for the completion of the property purchase as required.
The high risk strategy would be to wait and buy the currency at the time the property is due to settle. This means that you have no idea what the exchange rate will be and therefore no idea of the total cost of the property, which could induce some sleepless nights ahead, especially if you are on a tight budget.
I do not have access to all of the funds – what are my options?
If you do not have access to all of the funds at the outset you may want to consider securing a rate now to ‘play it safe’. The solution is to buy one or more ‘forward contracts’.
In essence, a 'forward contract' means that you can buy the currency now, and pay for it later (when you need to make the individual stage payments). You will be required to pay a 20% deposit now and the 80% balance upon the maturity of the contract. For example, if you wish to buy NZD $100,000 worth of AUD, but do not need to send them for 3 months, you can agree the exchange rate now, place a NZD $10,000 deposit and pay the remaining NZD $90,000 balance in 3 months. If the exchange rate moves at all in that 3 month period you will not be affected, as you have bought currency at the originally agreed rate. You may actually fix a rate on all your currency requirements up to 3 months forward.
Alternatively, if you do not have the funds available to pay the 20% required for a forward contract you could secure an Exchange Rate Guarantee (ERG).
By taking out an Exchange Rate Guarantee with HiFX you are securing the right, but not the obligation, to buy your currency at a pre-agreed exchange rate for a future date in time, by paying a premium (similar to an insurance premium). This means that you can fix the exchange rate now and decide on maturity of the contract whether the current market rate is better or worse than that agreed. If it is worse, you simply make a claim under the contract for the rate agreed. If better, you can transact at the improved current market rate.
I have strong views about future exchange rates – what are my options?
If you have strong views about future exchange rates, you could wait to buy your currency at some stage between agreeing to purchase the property and the date that currency is required. This applies to either buying (and paying for) all of the currency (a spot trade) or fixing a rate (a forward contract). Either way you are exposing yourself to currency risk.
Alternatively, if you are looking to achieve a specific rate, we can arrange a ‘market order’.
This allows you to target a better rate of exchange. We monitor the markets on your behalf and should the market reach your predetermined exchange rate, your currency is bought or sold automatically. Your order is active 24 hours a day and can be amended or cancelled at any time prior to the transaction taking place.
Whichever option you decide is right for you, please remember:
We always remind people that they would never agree to buy a property in New Zealand if they did not know how much it was going to cost them. If you agree to buy an overseas property without fixing the exchange rate at the outset, that's exactly the risk you are taking.
Please call us if you are unsure which option is right for you.