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Pile of U.S. coins (Ron Chapple/(C) 2006 Thinkstock)
Pile of U.S. coins (Ron Chapple/(C) 2006 Thinkstock)

Dollar

The power of currency fluctuations Add to ...

As the loonie flirts with parity (and beyond), cross-border shopping increases. I don't just mean popping over the border to pick up a new pair of shoes. Buying cars and real estate is becoming more attractive as well. But while we may not have an eagle eye on the exact exchange rate if we're buying shoes, we most certainly should for large-ticket items. A 2-cent change can mean a price difference of thousands of dollars.

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Luckily, you don't have to glue yourself to forex markets for the latest exchange rate quotes, waiting to pounce at just the right time. There are services available to Canadians that can handle this for you. Knightsbridge FX is an online currency exchange company that seeks to undercut foreign exchange rates offered by larger financial institutions and provides FX advisory services to business owners. But since currency exchange is their bread and butter, they also offer some institutional services to average retail clients, including cross-border shoppers.

Mind you, services like these only make sense when we're looking at big-ticket items. Let's look at two common tools Knightsbridge FX uses with clients on a regular basis: a currency forward contract and a limit order. A forward contract allows you to lock in an exchange rate for a later period in time. For example, perhaps you've purchased a condo in Florida and the closing date is 60 days away. If the loonie is strong today, you might want to lock in the rate even though you don't have the Canadian funds currently at your disposal. This ensures that you can take advantage of a currently strong loonie even though your transaction takes place in the future. However, if you lock into a forward contract, you're out of luck if the loonie continues to rise.

The second tool offered is the limit order. In this case, you simply indicate the desired exchange rate you're looking for and Knightsbridge will monitor the rate for you and give you a call when your rate is available. Perhaps you have a non-time-sensitive discretionary purchase on your wish list, such as a high-end stereo, but you've decided that you will only purchase it if you can get a great deal. You can spend less money if you can convert your loonies into greenbacks at a more favourable rate that translates into a discount for your wallet. If you get your rate, you get your stereo.

Don't underestimate the power of currency fluctuations, especially with big purchases. Some people are willing to accept cost certainty in exchange for giving up the potential for a better rate. Pennies on the dollar can translate into thousands in bottom line prices.

Preet Banerjee is senior vice-president with Pro-Financial Asset Management. His website is wheredoesallmymoneygo.com

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