Foreign Investments and Exchange Rates

The rise in the Canadian dollar has created a once in a lifetime buying opportunity for some Canadians, whether it be a luxury holiday, a foreign investment, or a foreign property purchase. With many Canadians transacting internationally, most take on unnecessary foreign exchange risk and don't achieve the best foreign exchange pricing on their transactions. Foreign exchange risk management is generally considered an afterthought.

Rahim Madhavji, President at Knightsbridge Foreign Exchange explains "Private clients transacting in foreign currency is a lucrative business for banks. High currency margins are the norm. The truth is, private clients can often obtain significantly better FX rates using a foreign exchange broker and also achieve cost certainty using simple and inexpensive hedging products."

While foreign exchange hedging is a normal part of business for many institutional organizations, individuals are left to figure it out themselves. There are simple and cost effective tools available to mitigate foreign exchange risk.

Private clients can lock-in foreign exchange rates using a forward contract, a service offered by Knightsbridge Foreign Exchange. For example, a Canadian buying property in Florida that agrees to a transaction today but is required to pay 90 days later is exposed to foreign exchange risk. While the foreign exchange rate today may be 1.0300 USD/CAD, it can easily move unfavorably by 10% in three months time. A forward contract allows an individual to lock in an exchange rate today at a fixed rate for use at a predetermined time in the future. If the exchange rate moves, the individual's purchase price is not impacted. It allows one to plan ahead and achieve cost certainty.

Sometimes, individuals look for a specific exchange rate. Knightsbridge Foreign Exchange offers a solution called a "market order". This allows an individual to instruct Knightsbridge to execute a transaction only if the foreign exchange rate can be executed at the rate specified by the client. "If the current rate is 1.0300 USD/CAD and the client requests 1.0200 USD/CAD Knightsbridge can watch FX markets in real-time, until the rate meets the appropriate threshold. Even if the rates meet the threshold for only a few seconds, the transaction can be executed in that time. This can often save individuals significant time from watching the markets themselves." Madhavji explains.

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