The Aussie dollar (attention Gen)

chewmylegoff

dryhat wrote: »

Seriously McT ...... I don't know what you're trying to do but it would definitley be worth seeing if you can do it with Bitcoin.

For the first time in history you are able to send payments to anyone in the world - instantly, securely, anonymously - for practically zero cost and without any interference from a third party.

It is money for the technological age and its use is growing by the day as more people see the benefits of this fantastic invention.

Bitcoin, or something like it, is the future of money and will change the world in the same way as the internet did 20 years ago.

He is trying to hedge currency risk £/AUD not take on a massive amount of additional currency risk by using an unstable third currency. Other than that, your suggestion is excellent.

dryhat

I did say I wasn't sure what he was trying to do.

HAMISH_MCTAVISH

dryhat wrote: »

Seriously McT ...... I don't know what you're trying to do but it would definitley be worth seeing if you can do it with Bitcoin..

No, I need to purchase assets in GBP in the next 30 days and sell in AUS 12 to 18 months from now. Then probably convert back to GBP unless I find something else interesting to do with the funds.

In this instance, Bitcoin won't help me buy/sell the assets nor hedge against the risk of the currency swinging against me.

purch

An outright forward transaction would lock in the current Spot price (adjusted for the exact date) and remove risk and uncertainty

HAMISH_MCTAVISH

purch wrote: »

An outright forward transaction would lock in the current Spot price (adjusted for the exact date) and remove risk and uncertainty

Could you simplify that enough for someone like me to understand?:D

purch

Generali wrote: »

Ok, I have a problem here. Most currencies are measured against the USD. If you want to measure the Pound against the AUD then there are 2 calculations and it's too hard to do.

Anything beyond basic adding and subtraction is beyond the normal skill set of a normal spot trader

purch

HAMISH_MCTAVISH wrote: »

Could you simplify that enough for someone like me to understand?:D

Well, i year GBP/AUD is around 445 points (discount)

Therefore if spot is 1.6600, the outright price for 12 months forward would be 1.6600 plus 0.0445 points.............1.7045

You would be basically locking in the current spot price, adjusted forward for one year. The forward price is a calculation, based on spot and the 2 interest rates for the period in question. You are holding GBP, and will swap it into AUD at a later date, and thus will be compensated for holding the lower yielding currency for the period in question. However this is not a winner/loser scenario, as basically the transaction is at current spot price adjusted forward.

This would remove all exchange rate risk from the equation.

Generali

I'm with purch. If you have a specific amount on a specific date then a currency forward is the way to do it. You can agree a price today for your transaction on a date in the future.

Instead of exchanging currencies today you agree to do it in a year's time.

Generali

Oh, the disadvantage of a forward is you would have to come up with margin to cover potential losses at the end of the contract. If the potential losses get large enough you may struggle to meet the margin payments despite having the money at the end as your losses would be offset by the additional profit from your venture.

Generali

Oh, one other point. There are loads of websites, similar to what used to be known as bucket shops, where they let you trade FX on a margin of 1% or even 0.5%. Steer clear. The idea they have is that you will get a margin call pretty quickly and they just scoop up all the margin without ever putting a trade on in the market to cover your gains.

If you're going to go down the road of buying a forward contract then you need to be sure that you understand how margin works.

An alternative to all of this would be to do the following:

1. Borrow against the AUD asset
2. Convert that money into GBP (i.e. lock in today's spot rate)
3. Repay the AUD loan on sale of the asset

In effect you're setting up your own forward trade as the way forward prices are calculated is by borrowing the short currency and putting the long currency on deposit.

The great advantage here is it's simple: you understand exactly what you're doing so you can't get stung. IIRC Citibank used to lend in foreign currencies. If you're struggling to find a lender I work in the industry here so should be able to uncover a lender if one exists. HSBC would be another bank to approach in the UK.