Euro to Dollar : Managing Currency Risk
OK - you've found your dream home in the sun, and now want to go
ahead
convert your euros to dollars, and protect your Euro to dollar exchange
risk - do you just contact your broker and go ahead - NO - what if
the sale falls through ? - what if the seller decides not to sell after
all? - what if the currency goes against you? - what if you have to wait
for months before completing on the sale? A lot of what if's!!
With a professional currency broker, you have several options which will help you to fix euro to dollar rates in the future, or to buy at a particular rate. Here are some of the options available to you :
Euro to Dollar : Order Types
| Contract Type | Benefits of the contract |
| Spot Contract | A spot contract allows you to buy the currency immediately at the spot market rates. The currency is available immediately as soon as funds are cleared from your account. |
| Forward Contracts | Forward contracts are a buy now, pay later solution which avoids currency market risk, by locking in an exchange rate today, for currency that you need up to 2 years in the future. All that is normally required is a 10% deposit, with the balance due on the contract expiry date. Forward contracts are widely used by property buyers where sales can take weeks or months to complete. They can also be used for stage payments on new builds. Using a forward contract does of course fix the rate so you always know what the asset will cost, however, this can work both for, and against you. If the currency goes in your favour you will not benefit, as your contract is fixed. Remember also that this is a contract, so you have a legal obligation to deliver the money at the required date. You cannot change your mind if your circumstances change for example, so think very carefully before signing the contract. |
| Limit Order | Using a limit order you can take advantage of sudden favourable movements in the rates. Determine the exchange rate you are hoping to achieve, and your currency will automatically be purchased if the markets reaches your desired level. |
Euro to Dollar : Foreign Currency Mortgages
If you do decide to opt for a foreign currency mortgage to purchase your asset, be aware that the terms of the loan are generally more onerous and less generous. Typically you will need a minimum deposit of 20%, and the repayment period is usually 15-20 years, rather than 25 years. Most mortgages are repayment loans, with interest only mortgages a rarity.
Most importantly, most are calculated on an affordability basis. Typically in European countries only a third of your disposable income may be taken up by debt, so the bank will work out the maximum you can afford per month given your incomings and outgoings, and work backwards from that point to produce a loan sum.
It is of course possible to benefit from lower interest rates in other countries, by re-mortgaging the property in your home country and mortgaging the overseas property with a lower interest loan. However in this case you would of-course be exposed to two different interest rate regimes, as well as currency exchange fluctuations - not for the feint-hearted. If you do your homework and understand the risks you are taking, it is perfectly possible to manage the currency risks quite happily - but make sure you understand the risks fully before signing on the dotted line!!
As always, thank you for getting this far, and I hope you found this site useful. Remember I am always happy to answer questions via email on ask Anna, and as always, may I wish you every success in your investing and in finding the best rates for your Euro to dollar currency exchange.