The Euro has been a fully traded currency for almost 3 years now with a fixed exchange rate against all of the participating 'Legacy Currencies' (those who are "in") such as the Peseta, French Franc and Deutschemark etc. Thus to exchange any one
Chart of the fixed rates against the Euro
( i.e. 1 Euro = 166.386 Pesetas)
|
Ø |
Austria |
13.7603 |
|
Ø |
Belgium / Lux |
40.3399 |
|
Ø |
Finland |
5.94573 |
|
Ø |
France |
6.55957 |
|
Ø |
Germany |
1.95583 |
|
Ø |
Greece |
340.75 |
|
Ø |
Holland |
2.20371 |
|
Ø |
Italy |
1936.27 |
|
Ø |
Portugal |
200.482 |
|
Ø |
Rep. Ireland |
0.787564 |
|
Ø |
Spain |
166.386 | | | of these currencies with another within the group, there was no risk of market fluctuations altering the amount you received when changing your money.
At the beginning of January 2002, the Euro will become legal tender, meaning that whatever you buy, you will be able to do so with either Euros or Pesetas. At midnight on 28th February 2002 the Peseta loses its 'legal tender' status, although you will still be able to exchange Pesetas for Euros at any regional branch of the National Central Bank for an unspecified period into the future. For full information please visit the following website:
www.euro.ecb.int
Still confused about the Euro? A really simple analogy is to imagine that the Euro is a bus, traveling along the global currency highway. In the bus is: The French Franc, The Peseta, The Lira, The Escudo, The Belgian Franc and all of the other Euro Legacy Currencies. Imagine also that next to the bus is a British racing green sports car. This is Sterling, outside of the bus and traveling at a different speed. If the sports car accelerates, it does so relative to all the currencies in the bus and also relative to the Volvo next to it (the Swedish Krone), the AC Cobra (the US Dollar), the Nissan Skyline (Japanese Yen) etc etc.. If the bus accelerates, all of its passengers will overtake the sports car. Inside the bus, they are all sitting next to each other, not moving either faster or slower than each other. The bus driver is Dutch (as he is currently president of the European Central Bank).
The Impact of Foreign Exchange Volatility on Buying Overseas PropertyIf you are a national from a non Euro country, such as the UK, buying property will involve making a currency exchange from Sterling into Euros. If, for example, you are buying a property off plan, the payments for your property are likely to be staged over a certain period of time; therefore, the actual cost will be determined by the timing of your currency purchase. Naturally, if Sterling strengthens during construction, the cost will decline but if the Peseta / Euro strengthens then your costs will escalate (This will also apply to those purchasing a straight 're-sale' property where there is a gap between the offer being accepted and the completion of the sale).
To illustrate the potential volatility, a property priced at ESP 80,000,000 would have cost  GBP 275,862 at the end of October 2000 but increased in cost by GBP 35,422 by mid January 2001 (12.8% increase in less than 3 months).
If you have full funds available you have 2 choices: one 'risk free' and one 'high risk'. The 'risk free' solution would be to buy all of the Euros now, thus fixing the cost at the outset. You can then deposit the bought currency to earn some interest and send payments to the developer as requested. Those of you who say "what about the lower interest I will earn on my Euros compared to my Sterling?" should look at the recent volatility of Sterling against the Euro.
The 'high risk' strategy would be to buy the Euros as and when you are required to send them. This means that you have no idea what the property is going to cost, which could induce some sleepless nights ahead, especially if you are on a tight budget.
What happens if you want to 'play safe' but do not have all of the money at the outset? There is a solution that is used daily by international businesses to protect their profit margins: buy one or more 'forward contracts'. In essence, a 'forward contract' means that you can buy the Pesetas for each payment to the developer now, and pay for it later (when funds are due). Normally you will be required to pay 10% of each future payment now and the 90% balance upon the maturity of the contract. For example, you wish to fix an exchange rate for £50,000 worth of Euros now for 3 months time, you can agree the exchange rate now, pay £5,000 now and £45,000 in 3 months. If the exchange rate falls, you are locked in at your 'guaranteed price' and therefore will lose no money.
Remember:You would never agree to buy a property in your country of residence if you did not know how much it was going to cost you; if you agree to buy an overseas property without fixing the exchange rate at the outset, you are taking a gamble. Bear in mind that no one, not even the most astute city commentators can predict future exchange rates.
Shop around:Do not run straight to your bank or broker to buy your currency; shop around. As with everything these days, it is a competitive market and there are specialist brokers who can sometimes offer better exchange rates but who can also spend the time and trouble to explain the various strategies mentioned above, and keep an eye on the market for you.
Written by
Alexander Wright, Property Desk at Halewood International Foreign Exchange.
Tel: 0044 (0) 1753 859159 aw@hifx.co.uk www.hifx.co.uk
To view live currency rates, please visit the Interealty homepage: www.interealty.es | | 
