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Watch a short video of how a forward contract works.
In January 2010, Mrs Connor agreed to buy a property in Florida. The sale was due to complete in May, when the payment of US $410,000 had to be paid.
She was concerned that the exchange rate might move against her during those four months, and decided to fix the exchange rate in advance. It let her know exactly how much the property would cost on the day.
In January she fixed a rate of 0.9165 to buy US $410,000, and paid us a 10% deposit.
Between January and May the exchange rate moved between 0.9328 and 0.8070. On the day her payment was due the rate was 0.8095.
If she had waited until May and exchanged her money at the prevailing rate, the property would have cost an extra A$59,131.42.
| US dollars | Australian dollars | |
| Cost of property in January with forward contract | $410,000 | A$447,354.06 |
| Cost of property in April without a forward contract | $410,000 | A$506,485.48 |
| Difference/saving | A$21,679 |
The rate could have improved by May too, in which case the property could have been less expensive. But Mrs Connor had budgeted to buy the property at a rate no worse than 0.86 – and fixing the rate in advance provided her peace of mind.
To find out more, call us on 1 800 835 506, or +61 2 8298 4900. You can also ask us to call you back.
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