Barclays

I want to make regular payments in a different currency

Background to making regular payments

If you make regular foreign currency payments then you will already know that certain factors affect how much currency exchange can cost you. These may include:

• Size of transaction
• Exchange rate between two currencies
• Volatility of a currency
• When you expect to carry out an exchange

FX videos

View our online FX videos:

• The basics of foreign exchange
• I want to buy a house in another currency
• I want to make regular payments in a different currency
• I want to manage my overall FX exposure as I'm holding a lot of different currencies

There are various ways to approach how you make a foreign exchange (FX) transaction, and these approaches can be dependent upon some of the following factors:

• How often you need to convert currencies
• How much capital you have in reserve and whether you are comfortable changing up more money than the transaction is worth, so that you can benefit whilst exchange rates are in your favour.

Foreign currency payments: A Case study¹ of Brianne

Brianne gets paid in US dollars, but she sends her children to a fee paying school in the UK. This means that she has to make regular payments for the school fees in sterling. Therefore her income and expenses are in different currencies.

If Brianne just makes the payment every month, she will be exposed to the volatility of the markets and the costs could fluctuate quite dramatically. Some months she might gain, others she might lose out. She has options for reducing the risk though.

Managing currency risk

Clients like Brianne, with regular receipts in one currency and payments in another, have ongoing exposure. The first step is to understand this exposure. Looking at charts can help her to see the volatility between the two currencies. From this she can see how the currencies move against each other.

Next, Brianne can decide what the ongoing risk is likely to be. Is there any way she can judge how sterling/dollar will move against each other? She can look at forecasts of how the rates are expected to change. However, there are no guarantees that this will be accurate. She considered other factors that affect currency rates to see some of the things that can affect exchange rates.

Brianne has decided she isn't prepared just to wait and do nothing and let currency fluctuations dictate her exposure. She wants to take action now to control her risk. Her adviser has told her that she has two main options:

1. She could remove the risk and lock in to today's rate in two ways. If she can find 12 months' worth of school fees, she can buy sterling now at today's spot rate and have the comfort of knowing exactly how much the fees have cost her in US dollars, or;
2. She can buy a FX forward which locks in the rate without her having to find the cash now or bring her cash forward for the year. She wants to have a better understanding of how FX forwards work before she makes her choice. Take a look at FX forwards to find out more details.

Brianne is also aware that by carrying out a FX forward she has to sign a legal agreement with us that she will settle the transaction in line with the terms of the contract. This means 10 per cent of the value of the FX forward limit is required upfront and will be held as collateral, and she needs the funds to complete the transaction for the agreed date(s).

After reviewing her options and the various levels of risk involved, Brianne decides to convert 12 months of schools fees at the current spot rate rather than completing an FX forward as she has the money available and feels this is best for her current situation.

Taking your exposure into consideration

If you are in a similar position to Brianne, you should consider the following:

• How can I reduce my exposure?
• What options are available to me?
• What would happen if I did nothing?
• How prepared am I to take the risk?
• Talking to your team at Barclays International

Online demo View the online demo of Lucinda who is also buying a property in another country.

Find out more about our FX services

If you are not currently a Barclays International client, but are interested in our FX services you will first need to apply for our banking services, which you can do by calling +44 (0)1624 684498^† or accessing our online application by pressing the button below.

If you are an existing client and would like to find out more information please either contact your Relationship Manager, call us on +44 (0)1624 684498^† or complete a call back request form.

Please note: access to our Treasury Specialists is via a three-way conference call. Clients who do not have a Relationship Manager and require a call with a Treasury Specialist or want to conduct a FX forward should either:

• Hold assets of £50,000 with us, or
• Intend to transact a minimum £50k (or currency equivalent)