Forex Group

If you are buying an asset overseas, there is a good chance you will need to buy some foreign currency. Forex Group can make that process simple for you. process with Forex Group is simple:

1. Register Now by submitting your details online.
2. Once registered, you will be assigned a dedicated Account Manager who will help you every step of the way.
3. Once registered, you can contact us at any time to request for an exchange rate. We recommend you compare rates with other providers before you need to make your purchase as rates will vary greatly.
4. Once you are ready to buy your currency, you simply need to advise how much you need, and the bank account details (beneficiary details) of where you need to send it.
5. We will send you a copy of the transaction which will state the amount of Australian Dollars that you need to send to us.
6. Once we have received your AUD, we will transfer your foreign currency to your beneficiary.

Example: Buying Overseas Property

A Forex Group client recently negotiated to buy a unit in Panama. The unit was due to be completed in nine months time and cost USD$120,000. Equal payments were made in three stages...six months from completion, three months from completion and one final payment.

The outcome of each strategy is the same for the purpose of this example as it is designed to illustrate what can be achieved, not to persuade you that one strategy is better than the other.

Strategy One - Buy All the Currency Today

It is quite possible that our client could fix his purchase price in Australian Dollars (AUD) by purchasing all the USD on the day the contract to buy the unit was finalised. Given that the price of the unit was USD$120,000 and the current exchange rate was 0.7456, the total AUD payment that would have been due was AUD$160,944.

This strategy only works where the client can financially afford to buy the USD today even though the payments aren't due for months into the future; and, the client has a foreign currency account to hold the foreign currency until the payments are due.

Strategy Two - Buy on the due date

Our client could have chosen this strategy which requires buying the foreign currency on the due dates and sending it to the developer. This strategy is high risk and highly susceptable to large fluctuations in the exchange rate as the client relies on obtaining a favourable exchange on the day the payment is due.

To rely on this strategy, you must accept the fact that the end price you pay for your asset is highly variable. If you are of the opinion that the AUD will strengthen during the period of your repayments, then this may be for you. For example:

Table 1: Payment structure based on last minute currency purchases

Payment	Amount	Rate on the day	AUD Amount
First	USD$40,000	0.7531	AUD$53,828
Second	USD$40,000	0.7683	AUD$52,063
Final	USD$40,000	0.7266	AUD$55,050
Total			AUD$160,944

Table 1 shows the three payments that were made for the unit. As you can see, the exchange rates fluctuated greatly during the repayment period and the end result may not have been satisfying for the purchaser.

Strategy Three - Forward Exchange Contracts

A Forward Exchange Contract(FEC) takes the risk out of your foreign exchange payments. An FEC enables you to lock in the exchange rates thus fixing the purchase cost of your asset, without having to pay for the contracts until the due date of the payment. The exchange rate used for an FEC is calculated based on several factors including the current exchange rate; the number of days till the contract matures and the interest rates of the repective countries (ie: the US and Australia for an AUD-USD FEC).

You will be required to pay a 10% prepayment now and the 90% balance upon the maturity of the contract.

Table 2 below illustrates the repayments based on three Forward Exchange Contracts (one for each payment). At the time the contracts were created, the current market rate was 0.7495. You can see that as the contract maturity gets further away, more points are deducted from the rate.

Table 2: Payment structure based on Forward Exchange Contracts

Time Period	Amount	Rate on the day	AUD Amount
Three Months	USD$40,000	0.7473	AUD$53,050
Six Months	USD$40,000	0.7456	AUD$57,803
Nine Months	USD$40,000	0.7439	AUD$55,249
Total			AUD$160,944

Strategy Four - Buying at opportune times

Instead, our client used or Morning Report to keep track of movements in the exchange rate and decided to buy when the rates were good. Working together with one of our Foreign Exchange specialists, he also made use of our Overnight Order service to secure peak rates during the night.

This is an aggressive strategy which is suitable if you have the time to keep tabs on the rates and want to maintain control of when you buy. Our client provided us with target rates and amounts which were purchased periodically throughout the time period he had available. The table below illustrates the purchases that were made.

Table 3: Buying at opportune times

Month Purchased	Amount	Rate on the day	AUD Amount
April	USD$20,000	0.7488	AUD$26,709
April	USD$20,000	0.7348	AUD$27,218
July	USD$40,000	0.7674	AUD$52,124
September	USD$20,000	0.7346	AUD$27,225
November	USD$20,000	0.7229	AUD$27,666
Total			AUD$160,944

You can see in the above table that purchases were made at various times during the contract period. During the month of July, the exchange rate spiked so the client made a bulk purchase of USD$40,000. Shortly after, the rate began to drop. A purchase was made in September and our client tried to hold out for them to rise again but was not so lucky. Hemce the low rate purchase at the end of his time frame.

CONCLUSION

Strategies are very unique to each individuals circumstances. We have outlined a few above but for more information, please call us on 1300 722 214 and one of our Foreign Exchange specialists will take the mystery out of the Foreign Exchange market.

Forex Group does not charge you any commission but it is important that you read our Financial Services Guide for more information.