Hedging
If you do not want to take risks with your money you should certainly consider the option of hedging.
There are many hedging techniques that are applicable to different people and people with different risk levels!
If you are buying a property in Israel or you are moving to Israel and want to bring your life savings here, the fluctuations in the exchange can either be advantageous or not depending on where the rates move. If you are happy to take the attitude that whatever the rate is at the time I need the money is the rate I get, then hedging isnt for you.
If you are constantly worried by the rate, then hedging is certainly something you need to think about. There are three main hedging options, but they can all be altered to suit you:
- Convert all the money now – The client has access to their money now and is happy with the current rate, convert it all now. This is normally an option for clients who cannot afford for the exchange rate to decrease. E.g. the client needs to buy 375,000 NIS in 3 months time, but only has $100,000 and the exchange rate is 3.75. If the rate was to decrease marginally the client would not be able to afford to buy the property!
- Wait until money is needed – Some clients wait until they need money and keep a very close eye on the exchange rates. The disadvantage with this strategy could be that since exchange rates are extremely volatile, they could get a rate lower then their worst case scenario rate.
- One third now – A common hedging technique is to buy a third of the required funds now, a third at the end and a third at some point in between. The aim of this strategy is to try and average a good rate. By converting a third at the beginning, the client knows they have guaranteed a set rate for some of the money. If the exchange rate then decreases for the last two thirds, they have helped their average rate by buying at the beginning. The opposite is also true bringing down the average rate, but that is why people hedge!!
