In September 2005, John and Margaret find a house they wish to purchase in Mallorca for €300,000. Their offer is agreed and they have to immediately pay a 10% deposit on the property, which they do via Currency UK. They then have 3 months before they need to pay the remaining €270,000.

They have a choice; do they leave themselves open to the currency market fluctuations or do they book a forward contract?

On 19 September 2005 they decide to book a forward contract at a rate of 1.4800, pay the deposit and then forget about the currency markets. At the end of December, they pay Currency UK the remaining amount on their forward contract and their house is purchased. They bought their currency at 1.4800 whereas the rate that they would have got on 29 December 2005 was 1.4450.

If they had not bought a forward contract, their property would have cost them £207,121.48. Having bought the forward contract, their new property only cost them £202,702.70 - a saving of £4,418.78.