“Forward” Forex Transactions
If you are overseas for a number of years it is very likely that you will make one or more significant currency transactions. This may be associated with the purchase or sale of a house, the repatriation of pension funds to Australia or a whole range of asset purchases.
In these circumstances, there is always a chance that forex rates might move appreciably between the time that a contract is made for the purchase of an asset and the time payment is due - review how the AUD has moved over the last 20 years. While there is a chance that rates will move “in your favour” the real concern is usually that rates move dramatically against you. This is particularly the case when the payment is supposed to finalise a house purchase and the implications of having inadequate funds are significant.
The use of forward contracts can remove this uncertainty entirely; they allow you to lock in an exchange rate now that will be used for your future transaction. They are calculated by using the current exchange rate for the currency pair, the interest rates for the two currencies along with the length (the date the contract is due) of the contract. These rates value the current exchange rate for a future date rather than trying to estimate where the market is heading.
Forward contracts will usually involve you making a deposit which allows you to retain and use the majority of your capital until the end of the forward contract.
Contact OFX to investigate whether a forward contract would suit your particular circumstances. You should note that once a forward contract is entered into it is binding and must be proceeded with, or risk the payment of close-out costs.