Paid in EUR. Living in GBP

ntw001

Hi,

The main wage earner of some friends of ours has recently relocated abroad and is being paid in Euros. He commutes on the weekends back to the UK to be with his family, but the majority of his outgoings are in GBP (mortgage, utility bills etc, food and living expenses for the family back in the UK). Their initial assessment was based on FX rates they saw published over the internet, but the reality is that whenever they convert their EUR to GBP they are paying the bid/offer spread on the currency and so they are seeing a lot less GBP than they expected.

In addition, with whats happening in the eurozone at the moment, they are understandably worried about their exposure to the EUR/GBP rate. At the moment its obviously working against them and its like they're getting a pay cut on a daily basis.

Is there anything they can do to narrow the spread they are paying when they convert their EUR to GBP and limit their exposure to the falling EUR rate?

Oldernotwiser

ntw001 wrote: »

Hi,
At the moment its obviously working against them and its like they're getting a pay cut on a daily basis.

But the EUR/GBP rate is excellent at the moment for someone in this situation; it's people who work in the UK and live in France who are having problems!

ntw001

Relative to what though? Relative to 18 months ago when 1 EUR would only buy you 79p sure, but the charts show the rate falling in recent months. It depends on what your reference point is. Our friends obviously have their reference point set at the time he agreed the contract to work abroad and since then rates have been falling.

I guess the question really isn't about the right now, its two-fold:

1. Can they minimise the spread they pay when they convert their EUR to GBP so they're not paying banks for the pleasure of having some GBP
2. Can they minimise their exposure to the change in FX rate so they have more guarantee of how many GBP they are getting each month.

Regshoe

ntw001 wrote: »

Relative to what though? Relative to 18 months ago when 1 EUR would only buy you 79p sure, but the charts show the rate falling in recent months. It depends on what your reference point is. Our friends obviously have their reference point set at the time he agreed the contract to work abroad and since then rates have been falling.

I guess the question really isn't about the right now, its two-fold:

1. Can they minimise the spread they pay when they convert their EUR to GBP so they're not paying banks for the pleasure of having some GBP
2. Can they minimise their exposure to the change in FX rate so they have more guarantee of how many GBP they are getting each month.

Not sure there is any easy way to achieve 1. other than shopping around for different accounts etc.

As for 2 - there are companies that will let you fix an exchange rate for the year (say) and then this is the rate you will get regardless of the spot rate. This would mean that your friends would benefit if the Euro weakened against the pound and lose out if the reverse happened, in either case though they would have a guaranteed income each month. A quick google brought up some company called hifx.co.uk as an example, though I've never heard of them before and have no idea whether they are reputable.

There are a number of other ways of fixing forex rates, primarily used by business rather than individuals. One way is to buy a currency option allowing you to purchase a particular currency at a future point at a particular rate, the value of this option would then vary with the spot rate. This method would ensure at (say) the year end you could cash in/exercise to make up any short fall over the year but:

1) It wouldn't help month to month cash flow
2) There is a premium to pay up front
3) There probably isn't an appropriate tradable personal product.

On the plus side though if there is some sort of product like this available it allows you to benefit from any favourable exchange movements (subject to the premium cost of couse).

Boozer

This has to be considered before taking the position, did your friend look at the GBP/Euro chart for the last few years, i am sure there has been a lot of change over that time.

I have been paid in dollars for the last 8 years, been from about 70p in the dollar to 49p, you just have to live with it i am afraid, change as little as possible when it is bad and the lot when it is good.

ntw001

Thanks for the replies.

Yes they did look at the rates, but I'm not sure how far back they looked. I'm also not sure they were aware of the spread when buying and selling and just looked at the mid or the traded price.

I'm aware of the currency option solution, but wasn't sure whether it was practical for an individual. Would they be able to get a small enough option simply to cover their monthly salary. And yes you correctly identify that they'd need to constantly roll this option on a monthly basis, unless they can purchase them in advance.

With regard to household bills I realise there is probably little they can do with their mortgage as its based on an asset thats valued in Sterling, but what about utility bills? Are their companies that will charge a EUR rate for services that doesn't fluctuate relative to currency rates?

Regshoe

ntw001 wrote: »

Thanks for the replies.



With regard to household bills I realise there is probably little they can do
Yes they did look at the rates, but I'm not sure how far back they looked. I'm also not sure they were aware of the spread when buying and selling and just looked at the mid or the traded price.

I'm aware of the currency option solution, but wasn't sure whether it was practical for an individual. Would they be able to get a small enough option simply to cover their monthly salary. And yes you correctly identify that they'd need to constantly roll this option on a monthly basis, unless they can purchase them in advance.with their mortgage as its based on an asset thats valued in Sterling, but what about utility bills? Are their companies that will charge a EUR rate for services that doesn't fluctuate relative to currency rates?

There probably isn't an option suitable, I only mentioned it out of interest really.

As a slight twist on getting charged in Euros (I would say that for administrative reasons most companies wouldn't want to/be able to do this) would his employer consider paying part of his wages in Sterling?

ntw001

Oddly enough the employer is an FX Broker!! But it doesn't sound like they have been too helpful in assisting the transition.

I would have expected they could do something for them like offering a decent rate for them to exchange without having to pay for the spread or even as you suggest, paying part of the wages in sterling.

Its something I will suggest.

paulwf

This probably won't work in practice but there must be lots of people who get paid in GBP that live in the Eurozone and would love to do a currency swap. You would both benefit by using the actual rate rather than the traders taking a cut. The problem will be finding someone trustworthy.

Savvy_Sue

Would another way of doing this be to get a Euro credit card which doesn't charge for UK£ transactions and use that as much as possible? I know it won't work for the mortgage, but might for utility bills and shopping?

Forgive me if that's a daft answer, it's just that I'm on holiday in the Eurozone atm, and cross with DH for once again using the wrong credit card ...

Plus I don't know how easy it would be to get a Euro credit card.