Making movies with the fluctuating Canadian dollar

Buying it Forward

Making movies with the fluctuating Canadian dollar is "like playing the lottery with other people's money."

Currency fluctuation has been on a lot of minds lately. We are all looking nervously at the dollar and hoping that it won't climb too high and drive away those US productions that are lured by our cheap money. It also causes a tremendous headache for producers who budget at one exchange rate only to find a completely different rate when it's time to fund the production. However, it can work the other way and produce a welcome bonus if the dollar slides after the budget has been locked. It's like playing the lottery with other people's money.

All of this was not much of a concern when the dollar was low and generally dropping. Recently, however, the dollar has shown surprising strength and has continued to rise against US currency. There are reports that it could climb to 85 cents and more against the US dollar.

Most producers are not experienced currency traders and would prefer certainty to the risk of either a windfall or a substantial hole in the budget. One way to avoid this risk is to buy forward the currency that will be used to finance a production. Let's say your financing includes $1 million (US) that will be cash-flowed during principal photography. When your financing is confirmed, you can approach a currency trader (banks are also now doing this) and book that currency forward.

That is, you can lock in the current exchange rate so that when you convert your US money to Canadian dollars during principal, you can be assured that the rate will be exactly the same as the rate you used in the budget. The currency trader will contract with you to purchase your $1 million over an agreed period of time and will require a deposit to hold that rate. For example, you may be required to pay 2% to hold the rate for three months, 4% to hold it for six months and 6% to hold it for twelve months. The charge for booking it forward is built into the rate that you pay for the currency, so there are no extra fees.

Once you lock in, you will not be able to take advantage of a drop in the dollar. However, you will have protection against increases and will be certain that the value you have attributed to your foreign money in the budget will be there for your use. If you decide not to trade the currency once you have entered into a contract to do so, you will lose your deposit and the currency trader will have the right to sue you for breach of contract.

You should also consider talking to currency traders about the exchange rate that you are getting for foreign currency. A currency trader may be able to obtain a better rate than that provided by the chartered banks, much like a mortgage broker. As currency traders are looking for long-term relationships with people who bring in foreign money, there may be additional flexibility in the prices quoted.

If currency trading is something you are comfortable with or if all indications are that our dollar will be losing against other currencies, booking a currency may not make sense. However, if the future of our dollar looks uncertain and you want a budget you can count on, buying forward is a good option.