If you are earning in US Dollars and converting back to pounds each month, your salary could have changed by as much as 4% already – and we’re only halfway through the year.
If you are earning in a foreign currency as a crew member, your true income in your home currency (once converted) can vary considerably from month to month. This can make it difficult to budget or plan for the future. Just this year alone the pound has moved within a 5 cent range against the US Dollar.
Remove Instability
So what can you do to remove this instability and take advantage when the rates are favourable?
A forward contract is a standard tool used within the currency market to fix an exchange rate for a specified amount and date in the future. Most banks will not offer this service so it is likely you will need to seek the help of an independent currency broker who will allow you to speak to an expert, to help guide you, based on your specific requirements.
So How Does It Work?
Let’s take an example of an employee from the UK working on a 12-month contract with an income of US$2,500 per month so in total $30,000 for the year. Each month the employee converts their US Dollar income to receive pounds.
What Happened In 2023?
During 2023, GBP/USD moved in a range from 1.19 to 1.31 creating a difference in their monthly income of more than £192 with a range of £1,908 to £2,100. To remove this variance, a currency expert could have helped fix the exchange rate via monthly forward contracts to guarantee the value of their income for the full 12 months. Had the employee fixed the exchange rate in January 2023 they could have fixed an exchange rate of approximately 1.2050 guaranteeing themselves £2,075 per month.
This removes uncertainty and allows the employee to budget effectively. They still receive their funds every month, there are no additional fees, and the employee has no exposure to any further currency fluctuations. In this example, the employee would have saved over £1,000 compared to the 2023 GBP/USD average price.
Remember: It’s Unpredictable In The The Currency Market
Of course, it does not always work out this way as the currency market is inherently unpredictable in its nature. It is therefore all the more important to consider your personal situation and needs before entering this type of contract. There may also be deposit requirements which will depend on your specific circumstances.
A specialist currency broker will take the time to understand all aspects of your situation and will often provide a tailored plan usually without charge. They will provide multiple solutions outlining the associated risks allowing you to make an informed choice.
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