Monday, September 22, 2008
Buying French wine in London requires payment in pounds not euros, since the British shopkeeper wants to be paid in pounds. Likewise, the French producer will require his money in local currency, namely euros. Along the road of this transaction, the importer would have had to arrange a foreign currency exchange operation.
The rate of currency depends on a number of factors, and will naturally have an influence on the price of the goods that will be imported or exported.
For an immediate exchange of currencies the spot rates market is used, and about half of the transactions are dealt with in this way.
The forward market takes a close second place, while futures and options account for only a smaller part of the currency market.
Thus, a Brit buying a holiday home in Florida will have to pay in dollars for this product (the house), and get an income from it also in dollars should he be letting it. If he wishes to sell it, he will get paid in dollars.
When rather than if, the value of sterling starts to depreciate, this can become an interesting proposition. Naturally even more so for those who purchase an American house now, as the prices are attractive and the value of sterling is still relatively on the high side.
Who can say that the value of the dollar will not appreciate in due course versus the pound? Taking the possibility of the pound depreciating and the dollar appreciating, the double impact of such a situation could be a stunning opportunity to think about.
Taking into account the rate of the two currencies and USA property prices being so attractive, there is an aroma of a mighty tasty proposition in the air. Waiting forever to secure even better chances could start looking dangerous. Things could get a little worse yet, but then, by being too greedy it is possible to miss the bus to good profits.
Is this not the time to start looking for some propositions the US realtors might have in store, and checking with the various foreign currency exchange companies who can quote you the lowest foreign currency exchange rates? Remember getting the best foreign currency rates goes a long way in counting the final cost of the house.
Being ready to spring into action when the situation demands it, is being prudent.
It is no secret that money makes money, anymore than it is no secret that you have to speculate to accumulate.
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