Global Real Estate:
Transaction Tools
Chapter 3: Money Concepts
In This Chapter
• Major world currencies and currency unions
• Why currencies fluctuate
• Effect of currency fluctuations on real estate
transactions
• Using exchange rates to convert values
• Combining currency and area calculations
• Moving money between countries
• Mortgage finance for foreign buyers
Page 34
Why You Need to Know
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Page 35
Manage value fluctuations
Transfer transaction funds
Repatriation of income and sales proceeds
Express values
Small Changes = Big Impact
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Price
Sale proceeds
Buying power
Return on
investment
• Gains or losses
Page 35
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Transaction costs
Loan payments
Rental income
Commissions and
referral fees
Offer to Closing
€500,000 - €50,000 =
€450,000
€450,000 = $562,500 @
1US$ = 0.80€
€450,000 = $630,000 @
1US$ = 0.73€ (Euro stronger)
Page 36
Amount needed to close
increased $67,500
Why Currencies Fluctuate
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Supply and demand
Speculation
Inflation
Devaluation
Dollarization
Pegging
Fixed-rate policy—no change
Page 39-40
Hard Currency, Soft Currency
HARD CURRENCY
• Store of wealth
– U.S. dollar, euro, Swiss
franc, U.K. pound,
Japanese Yen, Swedish
krona, Canadian dollar,
Norwegian krone,
Australian dollar, New
Zealand dollar, and gold
Page 40-41
SOFT CURRENCY
• Greater fluctuation
– Investors do not use it
to store wealth
Currency Unions
• Countries agree to use a common currency
– Euro
– Central and West African Franc
– Eastern Caribbean Dollar
Page 41
Advantage or Disadvantage?
• Advantage
– When value decreases you need more to
maintain value
• Disadvantage
– When value increases you need fewer units to
maintain value
Page 41-42
Managing Exchange Rate Risk
• Where are funds held and
in what currency?
• Opportunities can be lost
• Determine price range
• Down payment can be lost
if unable to close
Page 42-43
Exchange Rate Web sites
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Page 43
www.hifx.com
www.xe.com
www.OANDA.com
eXchangeRate.com
CoinMill.com
Exchange-rates.org
MSN Money
Conversion Equations
• Home currency to foreign currency
– MULTIPLY home currency by exchange rate
• Foreign currency to home currency
– DIVIDE foreign currency by exchange rate
Page 44
Skill Practice:
Currency Conversion
Page 45
Combining Currency and Area
1. Convert Currency
2. Convert Area and price
3. Convert Time
C
A
T
Page 46
Moving Money Between Countries
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Page
49-50
Wire Transfer
Check
Cash
ATM
• Repatriation
– Source
– Exchange rate
– Taxes
Mortgage Financing
• Difficult to qualify for mortgage financing
• Mismatch with U.S. underwriting
Page 50-51
Source: The 2013 NAR Profile of International Home Buyer Activity,
National Association of REALTORS®
Key Point
Review
Page 51-52