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kenzdawg

Hedging Against Currency Fluctuations.

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I think there's a good possibility of the pound regaining some of the strength it lost since 2007 when we devalued. Rising FTSE, possible interest rate rises, competitive devaluation from the eurozone and periphery. Now the dilemma is, if like me you're thinking of buying abroad you don't want to lock your purchase in at a shitty exchange rate, so how to hedge against the pound strengthening in the near future? I'm thinking gold or some other appreciating third medium.

Any thoughts?

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I think there's a good possibility of the pound regaining some of the strength it lost since 2007 when we devalued. Rising FTSE, possible interest rate rises, competitive devaluation from the eurozone and periphery. Now the dilemma is, if like me you're thinking of buying abroad you don't want to lock your purchase in at a shitty exchange rate, so how to hedge against the pound strengthening in the near future? I'm thinking gold or some other appreciating third medium.

Any thoughts?

We are equally interested but for a totally opposite reason. We are selling in France in order to move back to England and are worried that the pound will strengthen thus reducing our purchasing "pot", so how to protect our present value is our objective.

As Kenzdawg asks "Any thought's?"

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Simply mortgage your foreign property for as much as possible and keep/convert whatever cash you still have into Pounds!

That's certainly the simplest, but not necessarily the easiest to arrange or the most cost efficient. Not that I have much experience with derivatives, but I'm thinking a sterling call option might be the best approach. Maybe someone here knows better...

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I don't understand.. am I being thick ? :unsure:

If the pound strengthens, then in the future you will get more foreign currency per pound. Using EUR as an example:

eg. you used to get 1.60 EUR to the pound, the pound has weakened, and now you get eg. 1.19 EUR.

So you now get much fewer EUR, and so EUR properties are very expensive compared to what they used to be.

If you think the pound will strengthen, just delay your purchase abroad and convert when the rate is higher.

If buying abroad, your problem is if the pound weakens in future, to eg. 1.05 EUR, then you get even less EUR/property for your money.

I hold CHF, and I hope it get's stronger against the EUR, so I can buy more EUR/property for my money.

Strength is good, ie. it's the other way around ? :huh:

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No, you're not being thick. I'm basically looking for a way to buy now AND benefit from future appreciation in the value of the pound. That's not as paradoxical as it sounds, companies use derivates to offset the cost of currency fluctuations all the time. A 10-20% increase in the pound would have a bigger effect on my buying power than local property market depreciation, so of course I want to enjoy both right now. But being mortgaged in overseas currency would still make you vulnerable to fx changes and local interest rates, also, losing the property you wanted because you're waiting on the market sucks donkey balls.

Now admittedly I'm not very practiced in using this kind of thing, so I wondered if anyone has any experience of currency options they could share.

Edited by kenzdawg

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No, you're not being thick. I'm basically looking for a way to buy now AND benefit from future appreciation in the value of the pound. That's not as paradoxical as it sounds, companies use derivates to offset the cost of currency fluctuations all the time. A 10-20% increase in the pound would have a bigger effect on my buying power than local property market depreciation, so of course I want to enjoy both right now. But being mortgaged in overseas currency would still make you vulnerable to fx changes and local interest rates, also, losing the property you wanted because you're waiting on the market sucks donkey balls.

Now admittedly I'm not very practiced in using this kind of thing, so I wondered if anyone has any experience of currency options they could share.

If you truly believe the pound will appreciate against the currency in which you are buying, then get a mortgage in that currency, one that allows you to pay it off when you want.

Perhaps you should take a look at the trend of the pound versus the other currency over the last 100 years beforehand.

If, for example, it was the Swiss Franc, then the trend would be heavily against your gamble. The UK has been a devaluing country for a long time now, we're not so different from Italy.

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The UK has been a devaluing country for a long time now, we're not so different from Italy.

Not so much over the last 30 years or so, which is more than the length of a mortgage. Similar message with Gold; in theory it will always be worth the same but I'll be dead in a thousands years - in ten years it will be worth 70% less than now.

If you need to hedge against loss it has to be immediate and have a directly opposite price movement. Gold is a hedge against inflation , nothing else.

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Indeed, "in the long run we're all dead". When asking for financial experience/information here I've come to expect a pocket sermon on the awfulness of the economy/the UK/life in general, which is not really what I was asking for, but there you go.

As for holding an overseas mortgage, sound enough in principal but not always possible or desirable in practice. Lending criteria have tightened everywhere, and lending practice is often more conservative in stable economies. What's more high interest rates in the euro periphery could potentially wipe out the gains from hedging. So the question remains, how to hedge?

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Indeed, "in the long run we're all dead". When asking for financial experience/information here I've come to expect a pocket sermon on the awfulness of the economy/the UK/life in general, which is not really what I was asking for, but there you go.

As for holding an overseas mortgage, sound enough in principal but not always possible or desirable in practice. Lending criteria have tightened everywhere, and lending practice is often more conservative in stable economies. What's more high interest rates in the euro periphery could potentially wipe out the gains from hedging. So the question remains, how to hedge?

Hedging is usually used to describe offsetting the risky part of a transaction by taking the opposite gamble at the same time.

I can't see what this has to do with what you're proposing, which appears to be to profit from low interest rates(and the pleasure of owning the property) by buying now, while profiting from a supposed future strengthening in the pound.

Which risk exactly are you wanting to hedge against? A future drop in the value of the property? In which currency?

If you specify exactly how you propose to buy the property and in what currency you propose any debt to be in, then one of our forex experts will probably have a suitable answer.

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Hedging is usually used to describe offsetting the risky part of a transaction by taking the opposite gamble at the same time.

I can't see what this has to do with what you're proposing, which appears to be to profit from low interest rates(and the pleasure of owning the property) by buying now, while profiting from a supposed future strengthening in the pound.

Which risk exactly are you wanting to hedge against? A future drop in the value of the property? In which currency?

If you specify exactly how you propose to buy the property and in what currency you propose any debt to be in, then one of our forex experts will probably have a suitable answer.

He's wanting to hedge his timing basically, he doesn't want to wait in case he is wrong and he doesn't want to lose on the cheaper house in other currency terms if he is right.

He can do this at the cost of a call option on the currency pair he is dealing in, GBP/xxx for the term he would have waited for - 6 or 12 month options are quite liquid in the major pairs.

Options brokers and some spreadbetters are an easy way to access them.

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He's wanting to hedge his timing basically, he doesn't want to wait in case he is wrong and he doesn't want to lose on the cheaper house in other currency terms if he is right.

He can do this at the cost of a call option on the currency pair he is dealing in, GBP/xxx for the term he would have waited for - 6 or 12 month options are quite liquid in the major pairs.

Options brokers and some spreadbetters are an easy way to access them.

Thanks, I'm glad someone gets it. It's exasperating to have wait for two markets to align (property and forex) before being confident to buy. I'm actually interested in more exotic crosses, gbp and pln, czk, huf in particular. Bigger spread I know, but greater volatility and I suppose poorer liquidity. I still have plenty of research to do before I take the plunge. Do you have any pointers for useful resources; forums, articles, books? I'd appreciate it.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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