Managing Exchange Risk

 

If you operate in a currency other than the United States Dollar.

 

This document outlines international finance problems that affect you and our solutions for them.

 

Electraphysics charges only a performance fee.

 

However, fees exist outside of our domain - in your control when working with competitive financial institutions.

 

Common source of loss, charged by third parties such as local banks, include:

 

1. Currency exchange fees.
2. International wire transfer fees (sending and/or receiving).
3. Home currency gain/loss (caused by poor redemption timing).

 

These fees are not negligible and should not be ignored as they have a real impact on your net return.

 

We provide solutions to these issues at the end of this document.

 

 

Why is there exchange risk?

 

 

Electraphysics MNLSH manages portfolios denominated in US Dollars.

 

Our systems trade exclusively in US financial markets and buys/sells assets domiciled in the United States.

 

These assets must be paid for with US dollars.

 

All contributions to Electraphysics must be converted to US Dollars from your home currency.

 

If your home currency is US Dollars - no conversion takes place and you remain unaffected.

 

 

 

 

 

Global Problem #1 – Converting Funds

 

 

How and where you convert funds will impact your return.

 

 

Example:

 

 

Local banks often mark up the exchange rate by 3-6% on conversion - one way.

 

To convert $10,000 CAD to USD dollars, you may spend between $300 to $600 CAD in exchange rate fees.

 

Many are ignorant of fees because they do not pay attention to them on lower amounts.

 

On $100, this fee would be $3 to $6, which often is ignored.

 

On large amounts, fees have a real tangible, noticeable and detrimental effect.

 

 

Therefore, 3%-6% becomes a hidden initial loss on your contribution that must be overcome before net profit.

 

Over one month may be required to recover the initial conversion fee charged by your local bank.

 

Worse, when you redeem, this 3-6% fee will be charged again when converting USD to your home currency.

 

 

Check with your bank to understand their exchange fees and if it makes economic sense to use your local bank.

 

You do not need your local bank to perform this conversion.

 

 

 

 

 

Global Problem #2 – Transferring Funds

 

 

Many banks charge a fee to send and/or receive a funds transfer (i.e. wire).

 

This fee can range from $0 to $125 to send funds depending on the amount being transferred.

 

Some banks may charge a fee to receive a fund transfer.

 

These fees may be negligible or not negligible based on your perspective.

 

However, it is possible to pay near zero for these fees.

 

 

 

 

 

Global Problem #3 - Holding period FX appreciation/depreciation

 

 

 

When you contribute to Electraphysics - you are in US dollar-denominated assets.

 

Your contribution to Electraphysics MNLSH may be doing very well.

 

But.

 

If the US dollar depreciates against your home currency during your contribution period.

 

When you redeem funds, it will cost more USD to convert back to your home currency.

 

The value of the US dollar is lower than the value when you first converted.

 

This is a currency loss.  This will reduce your net return.

 

 

However, if the US dollar appreciates against your home currency during the same period.

 

Enjoy an additional bonus of a currency gain on your funds. This will increase your net return.

 

 

Either of these possibilities is certain.

 

 

The USD will either appreciate or depreciate during your contribution term.

 

It will be higher or lower when you choose to redeem your funds.

 

However, it is best to assume a worst-case scenario by default, where the USD depreciates during the period.

 

These currency gains/losses are a normal effect of participating in foreign markets outside of your home country.

 

However, you do not need to accept them.

 

 

 

Solution #1 – Converting Funds

 

 

Electraphysics does not recommend members to use their local bank to convert funds to USD.

 

Use our proprietary systems for that process.

 

Deposit home currency funds in your Electraphysics account and use the interbank rate for conversion.

 

As low as 0.5%, near the actual market rate versus 2.5 to 5.5% compared to local banks.

 

The $300-$600 charge (in the example) would now be only $50.

 

Process:

 

1. Deposit funds locally in your Electraphysics account for your country of residence (see below).
2. Log in to Electraphysics and convert funds to USD (or vice versa) at the interbank rate.
3. Your funds are prepared for management by MNLSH without any further work.

 

 

Electraphysics Interbank Reference:

 

 

 

Solution #2 – Transferring Funds

 

 

For the countries listed above.

 

You may perform a local bank transfer or direct deposit to your Electraphysics account.

 

An international wire transfer is not required.  Negligible transfer fees and fast delivery time  (see below).

 

Electraphysics Transfer & Fee Schedule

 

Delivery time and fees are shown for the maximum transfer amount.

 

Delivery time is shorter for lower amounts.

 

If you live in an area not listed, you must externally convert funds to USD and transfer funds to our U.S. Bank.

 

Work with a financial institution in your country that provides the best exchange fees.

 

 

 

 

Solution #3 – Exchange rate appreciation/depreciation.

 

 

Without using sophisticated methods such as derivatives (options).

 

 

The simplest solution:

 

 

Redeem funds when the USD is higher than when you originally converted.

 

This results in zero currency loss.

 

 

If the USD declined, when you choose to redeem.

 

Make an informed decision on what currency loss is tolerable.

 

 

 

To avoid and reverse the effect of a currency loss:

 

Receive notification from Electraphysics MNLSH to notify when the USD is above a price you have set.

 

Electraphysics will automatically notify you when the rate is favourable without monitoring FX rates every day.

 

 

 

If the USD depreciated against your home currency:

 

Keep funds in MNLSH to earn returns while waiting for the exchange rate to recover and then redeem your funds.

 

MNLSH may assist by providing a best estimate of where the USD will be over longer time horizons.

 

 

 

If the USD appreciated against your home currency:

 

Redeem at anytime without any currency loss and enjoy currency gains on top of your net returns.

 

 

At Electraphysics, we provide the ability to redeem funds when you require.

 

However, it is in your best interest to understand the impact of fluctuations of your home currency versus the USD and the effects of currency gains/losses impacting your total net return.

 

This is the trade-off of providing flexibility and regularity in redemption.

 

Using the methods outlined above, the negative effects of participating in foreign markets can be mitigated.

 

If you are from the United States or from outside of the US but keep funds in US dollars, problems #1, #2 and #3 do not affect you.

 

 

 

If you are from a country that is not listed above.

 

 

Potential members based in countries not listed above may still acquire Electraphysics membership.

 

If you keep USD funds in your home country, there is no issue.

 

If you do not keep USD funds, externally converting your currency to USD will be required.

 

Select an institution providing competitive rates to reduce the effect of exchange fees.

 

 

Note:  External conversion at your local bank needs to be only a one-way process.

 

On redemption, you may convert USD to your home currency through our systems at the interbank rate.

 

50+ currencies are supported.

 

 

Your funds are prepared in advance for transfer to your bank without incurring exchange fees upon receipt.

 

Members from the following countries are accepted, contact member services for more information.

 

Argentina

Australia

Brazil

Bulgaria

Canada

Chile

China

Colombia

Costa Rica

Croatia

Czech Republic

Denmark

European Union Member States/SEPA (all)

Georgia

Ghana

Hong Kong

Hungary

India

Indonesia

Israel

Ivory Coast

Japan

Kenya

Malaysia

Mali

Mexico

Morocco

Nepal

New Zealand

Norway

Philippines

Poland

Romania

Russia

Senegal

Singapore

South Africa

South Korea

Sri Lanka

Sweden

Switzerland

Liechtenstein

Thailand

Turkey

Uganda

Ukraine

United Arab Emirates

United Kingdom

United States of America

Uruguay

Vietnam