When you need to send money overseas, the exchange rate you receive is a crucial factor in determining the overall cost-effectiveness of your international money transfer. The value of the Australian Dollar relative to other currencies around the world changes all the time and is influenced by a range of factors. This, in turn has an impact on how much of the money you send arrives to your beneficiary.
You can protect yourself against fluctuating exchange rates by placing a forward contract, which allows you to secure the current exchange rate for use in a future international money transfer.
The "Rate" and "Amount Received" displayed are indicative rates that have been supplied by each brand or gathered by Finder.
Exchange rates are volatile and change often. As a result, the exchange rate listed on Finder may vary to the actual exchange rate quoted for the brand. Please confirm the actual exchange rate and mention "Finder" before you commit to a brand.
Updated October 14th, 2019
Disclaimer: Trading in financial instruments carries various risks, and you can lose more than your capital. This article may contain general advice. You should always seek professional advice when deciding if a product is right for you.
What are forward contracts?
Forward contracts are an international money transfer tool that allow you to reduce your exchange rate risk. When you place a forward contract you can lock in the current exchange rate for an overseas money transfer that will take place at a later date.
Securing a rate in advance allows you to plan ahead and safeguard your finances against any potential future drops in the value of the Australian Dollar. If you expect the value of the currency you are planning on sending to fall, you can consider placing a forward contract and ensure that you get better value for money on your transfer.
Forward contracts let you enjoy the benefits of a good exchange rate today on a transaction that will take place up to 12 months into the future. To calculate the rate for your forward contract, a money transfer provider will adjust the spot rate (the current market exchange rate) for what are known as ‘forward points’, which factor in the difference in interest rates between your sending and receiving countries and the length of time until your transfer will actually be completed. A standard formula is used across the industry when calculating forward point.
You will usually be required to pay a deposit to secure your exchange rate but will then be able to enjoy protection against any exchange rate fluctuations that may occur until your transfer is placed.
For example, Brian knows that he will need to send a transfer of AUD $5,000 to the United States in two months’ time to pay off an outstanding debt to his brother. The current exchange rate is 1 AUD = 0.70 USD, but financial experts and economists are predicting the value of the Aussie Dollar to drop further in the coming weeks.
Brian doesn’t have all the funds needed to transfer the full amount now, so he places a forward contract with an online money transfer provider and locks in the current exchange rate. He pays a 10% deposit of $500 and, two months later, pays the remaining $4,500 and his transfer is sent. Brian’s brother receives USD $3,500 two days later.
Had Brian not placed a forward contract and simply transferred the money using the best exchange rate he could find, he would have had to settle for an exchange rate of 1 AUD = 0.67 USD. This means his brother would only have received $3,350 - $150 less than he received thanks to Brian’s forward thinking.
Although this article only deals with forward contracts in terms of international money transfers, forward contracts can also be used as a trading tool across a range of other financial assets. These include shares, contracts for difference, commodities and more.
How do I compare forward contracts?
Exchange rates. Although forward points are calculated using an industry standard formula, the spot exchange rate on offer will differ from one company to the next. See which transfer companies regularly offer exchange rates that compare favourably to the competition.
Fees. Will you need to pay an extra fee to lock in a forward contract? If so, how much? And will you need to pay this on top of the standard transfer fee that a company already charges?
Transfer options. Consider the options available for placing a forward contract, such as online, over the phone, or by using a mobile app.
Customer support. If you ever have a question about a transaction, will you be able to get the help you need from your transfer provider?
Protect yourself. Forward contracts allow you to protect your finances against the impact of fluctuating exchange rates.
Buy now, pay later. You don’t have to pay for the full cost of your transfer until it is actually placed, which could be up to 12 months into the future.
Choose a rate that suits you. Forward contracts give you the power and freedom to secure an exchange rate that suits your financial needs.
Cons
The exchange rate could improve. Predicting the future value of a currency can be difficult, so there is a risk that the exchange rate will rise in the interim and cost you money.
The main issue to be wary of with forward contracts is that the exchange rate could rise after you lock in a forward contract and you could end up losing out. A huge range of factors can affect the value of one currency relative to another, and sometimes it’s not possible to predict exactly which way the value of a currency will go.
Frequently asked questions
This is the current market exchange rate.
Some transfer providers that offer this service include OFX, Macquarie and Travelex International Payments.
This is the date when your transfer will be sent and it is set when you take out your contract. The maximum maturity date you can lock in is 12 months.
Yes, this is possible in some cases, but check with your transfer company for confirmation.
Shirley Liu is Finder's global program manager. She was previously the publisher for banking and investments and has also written comparisons for energy, money transfers, Uber Eats and many other topics. Shirley has a Master of Commerce and a Bachelor of Media, Journalism and Communications from the University of New South Wales. She is passionate about helping people find the best deal for their needs.
How likely would you be to recommend finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Important information about this website
finder.com.au is one of Australia's leading comparison websites. We compare from a wide set of major banks, insurers and product issuers.
finder.com.au has access to track details from the product issuers listed on our sites. Although we provide information on the products offered by a wide range of issuers, we don't cover every available product. You should consider whether the products featured on our site are appropriate for your needs and seek independent advice if you have any questions.
Products marked as 'Promoted' or "Advertisement" are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options and find the best option for you.
The identification of a group of products, as 'Top' or 'Best' is a reflection of user preferences based on current website data. On a regular basis, analytics drive the creation of a list of popular products. Where these products are grouped, they appear in no particular order.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment.
We try to take an open and transparent approach and provide a broad based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labelling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
Providing or obtaining an estimated insurance quote through us does not guarantee you can get the insurance. Acceptance by insurance companies is based on things like occupation, health and lifestyle. By providing you with the ability to apply for a credit card or loan we are not guaranteeing that your application will be approved. Your application for credit products is subject to the Provider's terms and conditions as well as their application and lending criteria.
Please read our website terms of use for more information about our services and our approach to privacy.
