Using a Forward Contract to protect your budget during times of volatility

Receiving guidance from an expert could be invaluable to ensuring you manage your budget effectively when it comes to exchanging currencies.

Is there a way to protect my budget?

One effective financial instrument that can help you protect yourself from currency risk is a forward contract. This article will explore how you can use a forward contract to purchase a property in France, helping you adopt a strategic approach to foreign exchange.

Why Currency Management Matters

In France, all property transactions must be exchanged in euros, irrespective of the buyer’s or seller’s nationality. For those holding funds in currencies other than the euro, efficient currency exchange management is imperative.

This involves monitoring exchange rates from the initial stages of planning and travel to France all the way through to completing the property purchase. Failing to address currency risk exposure during this period can lead to unforeseen financial implications.

Understanding the Solution: Forward Contracts

A forward contract is a powerful financial instrument that can shield property buyers from the uncertainties of currency fluctuations. Simply put, it is an agreement between two parties to exchange two currencies at a predetermined rate in the future, ensuring the property’s price is not affected during the months between deposit and completion.

Advantages of Using a Forward Contract

· Protect Yourself from Exchange Rate Fluctuations: It’s easy to underestimate the constant fluctuations in exchange rates, but these fluctuations can significantly impact the final price paid for a property. A forward contract serves as a shield, protecting you from unforeseen currency rate changes.

· Lock in a Favourable Exchange Rate: Securing a forward contract allows you to lock in a favourable exchange rate when making the initial deposit. This guarantees the same rate throughout the entire property purchase, meaning you don’t have to worry about market volatility.

· Secure the Rate in Advance with a 10% Deposit: You can initiate a forward contract with a 10% deposit, providing flexibility and ensuring that the entire amount doesn’t need to be exchanged upfront. The remaining payment can be settled when it’s time to complete your property purchase, making it accessible even if you don’t have immediate access to the total funds.

· Fix the Exchange Rate for Up to Two Years: Beneficial for off-plan purchases or those utilising mortgages, forward contracts can be used with Regular Payment Plans to fix the

exchange rate on smaller payments for up to two years. This long-term rate certainty simplifies financial planning and brings stability to budgeting.

· Have Certainty Over Your Budget: Fixing the exchange rate with a forward contract can give you the confidence of knowing the exact price you’ll pay for the property upon completion. This certainty allows you to plan your finances accurately throughout the property acquisition process.

For those aspiring to own property in France, a forward contract is an invaluable tool for navigating the complexities of foreign exchange. By safeguarding against currency fluctuations, locking in a fixed exchange rate, and providing payment flexibility, forward contracts enable you to make informed decisions and mitigate risks, helping you achieve your dream of owning a property in France with confidence.