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Foreign Exchange: The Complete Deal by James Sharpe

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Appendices

Appendix 1. Foreign exchange solutions in brief

Example 1

Customer wishes to buy a Spanish villa with cash.

  • Now: use a spot trade, short-term considerations.
  • In six months: use a forward trade, medium-term considerations, forecasts, current spot price, interest rate differentials.
  • Customer borrows in a low interest rate currency and converts: use a spot trade, which gives a gain on interest cost but some spot risk. This is a carry trade.

Example 2

Customer wishes to fund Spanish property with sterling cash but wants no exchange rate risk: use an FX swap. There is interest rate risk.

Example 3

Customer has already bought property but will return to UK: sell EUR forward and use a rolling hedge (FX swap). This ...

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