Sterling 2012 Outlook

HARGREAVES LANSDOWN CURRENCY SERVICE DECEMBER 2011 - 4.95

investments

One College Square South, Anchor Road, Bristol, BS1 5HL www.hl.co.uk

STERLING 2012 OUTLOOK

www.hl.co.uk 2011 has been another interesting year for foreign exchange markets. Whilst attempts to resolve the euro zone crisis have often dominated news headlines, the challenging global economic backdrop continues to threaten most major economies. This special report provides a brief summary of events during 2011, with charts showing sterlings performance against some

Sterling 2012 Outlook

HUMAN TRAGEDY IN JAPAN Workers at Japans Fukushima Daiichi nuclear plant battle to gain control after a tsunami. Japanese yen surges on expectations domestic investors and insurance companies would sell overseas assets to pay for the rebuilding costs. A reduction in UK corporation tax signals an open for business message as the coalitions Budget balances giveaways with tax rises. A rst cut in New Zealand interest rates since April 2009 in response to Christchurch quake.

UK INTEREST RATES ON HOLD AS UK ECONOMY SHRINKS Sterling touches month highs above 1.20, marking its high point for 2011 (as at 19/12/11). UK interest rates kept at 0.5% historic low after Gross Domestic Product (GDP) shrinks by 0.5% in the nal quarter of 2010. Euro zone ination rises above the European Central Banks (ECB) target for the rst time in two years. The pound trades at its lowest level against the Australian and New Zealand dollars since the mid-1980s.

SPECULATION OF A EURO BREAK-UP RISES Speculation Greece could be preparing to leave the euro intensies. The ECBs tough stance on ination seen as favouring Germany at the expense of weaker economies which would benet from lower interest rates. BoE keeps interest rates at 0.5% for a 26th consecutive month, despite acknowledging consumer ination might peak above 5% later in the year. BoE prefers to view ination as a temporary issue, blaming one-o factors such as Januarys VAT rise, higher energy prices, and the weak pound (which makes imports more expensive).

JANUARY FEBRUARY

MARCH APRIL
ECB RAISES INTEREST RATES ECB lifts interest rates for the rst time since July 2008, by 0.25% to 1.25%. Portugal becomes the third euro member, after Greece and Ireland, to seek a nancial rescue. UK and US economies grow modestly over the rst quarter of 2011, with UK GDP growth reversing its 0.5% decline in the preceding quarter. Sterling reaches a 2011 high (as at 19/12/11) above US$1.67.

MAY JUNE

MIDDLE EAST/NORTH AFRICA BECOMES FOCAL POINT Egypts President Hosni Mubarak ousted from power and Libya veers towards civil war. Swiss franc gains as global uncertainties grow. China overtakes Japan as the worlds second largest economy (behind the US). Three of nine Bank of England (BoE) policymakers vote to lift interest rates as UK ination hits double its 2% target. New Zealand dollar falls to a 19-year low versus the Australian dollar after devastating 6.1 magnitude earthquake hits Christchurch.

GREECE REACHES NEW AUSTERITY PLAN Greece reaches a deal with the European Union and International Monetary Fund over a new 5-year austerity plan. ECB President Trichet says strong vigilance on ination needed. The phrase had previously tended to signal an imminent interest rate rise. New BoE policymaker Ben Broadbent sides with the majority in a 7-2 vote to keep UK interest rates at 0.5%. His appointment is seen as tipping the dynamics of the committee towards adopting a lower for longer stance on interest rates. Australian dollar buoyed by reports Russia would begin diversifying its reserves into the currency.

0117 311 3257 of its most important peers. The 2012 outlook includes forecasts from a range of industry experts from: Allianz Global Investors/RCM; BNY Mellon Asset Management; IG Index; Investec Asset Management; J.P. Morgan Asset Management; Royal Bank of Scotland; Royal London Asset Management; Saxo Bank A/S; Schroders; Standard Life Investments; and Threadneedle Investments. IMPORTANT INVESTMENT NOTES Hargreaves Lansdown is authorised by the Financial Services Authority ("FSA") as a Payment Institution under the Payment Services Regulations 2009. Our Firm Reference number is 149970. You can look this up on the FSA register website (www.fsa.gov.uk/register/). The outlook and forecasts are opinion

STERLING 2012 OUTLOOK 3 only and should not be read as advice. Exchange rates are a result of many diverse economic and political factors, making them extremely dicult to predict in a rapidly changing global market place. We hope you nd the report useful, but if you have any questions please contact our currency specialists on 0117 311 3257.

EURO ZONE BORROWING COSTS RISE AS ECB HIKES RATES ECB lifts interest rates from 1.25% to 1.5%. Italian and Spanish 10-year borrowing costs rise above 6%; dangerously close to the level which has prompted previous bailouts. US dollar falls after a stand-o between US politicians over lifting the US debt ceiling. UK economy grows by 0.2% (later revised to 0%) in the second quarter of 2011. Sterling falls to 2011 lows (as at 19/12/11) against the Australian dollar (below AU$1.48) and Canadian dollar (below CA$1.53).

SNB TAKES ACTION The Swiss franc plunges as the Swiss National Bank (SNB) stands ready to sell the franc in unlimited quantities to enforce a minimum euro/franc exchange rate of 1.20. Sterling falls against the US dollar after the Federal Reserve launches Operation Twist; selling short-term debt to fund longer-term debt purchases to drive long-term borrowing costs lower. The move adds no new money and disappoints hopes of a third phase of quantitative easing (QE). Five major central banks coordinate eorts to lend US dollars to commercial banks; responding to signs lending between banks had slowed owing to concerns over their exposures to the debts of beleaguered euro zone countries.

ECB CUTS RATES AS BORROWING COSTS SURGE ECB lowers interest rates from 1.5% to 1.25%, reversing its July decision. Italian Prime Minister Silvio Berlusconi resigns as Italian 10-year bond yields surge past the 7% threshold which prompted Greece, Ireland and Portugal to seek bailouts. UK GDP grows at 0.5% during the third quarter of 2011 (later revised to 0.6%). Reserve Bank of Australia cuts interest rates for the rst time in more than two and a half years, from 4.75% to 4.5%.

JULY AUGUST
US LOSES ITS AAA DEBT RATING US Congress agrees to raise the $14.3 trillion debt ceiling, but fails to prevent the country from losing its top AAA credit rating from Standard & Poors for the rst time. The US Federal Reserve indicates it expects to hold interest rates at close to zero until mid-2013. ECB buys Italian and Spanish government debt in an attempt to hold down their borrowing costs. The Swiss franc and Japanese yen gain as investors seek out perceived safe-havens. Sterling/Swiss franc falls to historic lows below 1.15.

SEPTEMBER OCTOBER

NOVEMBER DECEMBER
DOUBTS LINGER AFTER EU SUMMIT EU leaders summit reaches agreement for tighter budget rules for euro members and extra loans to the International Monetary Fund to help tackle the crisis. Standard & Poors warns it could cut 15 euro zone countries credit ratings unless bold action is taken. ECB lowers interest rates for a second successive month, from 1.25% to 1%. Reserve Bank of Australia cuts interest rates for a second successive month, from 4.5% to 4.25%. US unemployment rate falls from 9% to 8.6%.

BOE INCREASES QE BoE increases QE for the rst time since November 2009, by 75 billion to 275 billion. Italys borrowing costs continue to climb despite a deal to reduce Greeces debt burden and increase the communal bailout funds. Bank of Japan boosts its asset purchase programme by 5 trillion (equivalent to over 40 billion). Reserve Bank of New Zealand and Bank of Canada keep interest rates at 2.5% and 1%, respectively.

STERLING 2012 OUTLOOK

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2011 EXCHANGE RATE CHARTS

STERLING/EURO (GBP/EUR)
1.22 1.20 1.18 1.16 1.14 1.12 1.10 1.08 1.50 1.55 1.65

STERLING/US DOLLAR (GBP/USD)

Trend line Exchange rate
1.70

1.60

11 20 7/ /0 01

/1 01

11 20 4/ /0 01

STERLING/CANADIAN DOLLAR (GBP/CAD)

1.65

1.60

1.55

1.50

STERLING/JAPANESE YEN (GBP/JPY)

140

135

130 1.55 125 1.50 120 1.45

1 01 1/2 /0 01 01 /0 1/2 1 01
115 2.25 2.20 2.15 2.10 2.05 2.00 1.95 1.90 1.85

1 01 /2 /12 09

11 20 7/ /0 01

/1 01

1 01 1/2 /0 01

11 20 4/ /0 01

1 01 /2 /12 09

11 20 0/

11 20 0/

STERLING/SWISS FRANC (GBP/CHF) STERLING/SWISS FRANC (GBP/CHF)

1.60 1.55 1.50 1.45 1.40 1.35 1.30 1.25 1.20 1.15 1.10

01

01

01

01

09

01 /0 4/ 20 11 /0 01

01 /0 7/ 20 11 01

01 /10 /2 1 01 01

09 /12 /2 1 01
1.65 1.60

/0

/0

/10

STERLING/AUSTRALIAN DOLLAR (GBP/AUD)

/0 1/2 1 01 /0 01

/12

4/ 20 11 01 01

7/ 20 11

/2 1 01 /10 01

/2 1 01 09

09

STERLING/NEW ZEALAND DOLLAR (GBP/NZD)

01 /0 1/2 1 01 01 /0 1/2 1 01

/0

/0

/12

/0 7/

/10

/12

7/

4/

1/2

/2

/2

4/ 20 11 01 /0 4/ 20 11

20

20

/2

/2

1 01

1 01

20 11 01 /0 7/ 20 11 01

1 01

1 01 /10 /2 1 01

1 01

11

CENTRAL BANK INTEREST RATES

Country UK Euro zone US Canada Switzerland Australia New Zealand Japan
09 /12 /2 1 01

Please note: Interest rates correct as of 9th December 2011

11

% 0.50 1.00 0-0.25 1.00 0.00 4.25 2.50 0-0.10

Last change 5th March 09 8th December 11 16th December 08 8th September 10 3rd August 11 6th December 11 9th March 11 5th October 10

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STERLING 2012 OUTLOOK 5

Europe in CRISIS
The euro zones debt crisis has deteriorated rapidly in the past year, as signalled by rising borrowing costs in many of the regions heavily indebted economies. Stabilising euro zone sovereign debt markets will be crucial to resolving the crisis.
Ben Brettell Economics Editor WHAT HAS BEEN HAPPENING? In recent months, yields on the government bonds issued by countries such as Italy and Spain have climbed sharply compared with German bonds. The dierence, or spread, is an indication of the additional risk markets perceive in lending to them relative to Germany. As at the end of November, Italian and Spanish 10-year government bonds yielded 7.02% and 6.23% respectively, compared to 2.28% for Germany. Throughout 1999-2007, prior to the global nancial crisis, these Italian and Spanish yields were less than 1% above Germanys. WHY ARE BORROWING COSTS IMPORTANT? The higher borrowing costs become, the more a country has to pay to service its debts and the more quickly its debts are likely to accumulate. A yield of more than 7% on 10year government debt is widely considered unsustainable, having previously prompted Greece, Ireland and Portugal to seek bailouts. The issue also becomes more critical when a country has a large amount of debts maturing in the near term, requiring new borrowing to repay past borrowing. WHY DID BORROWING COSTS FALL AFTER THE EUROS INCEPTION? Prior to the euros 1999 debut, anticipation of Spain and Italy joining the currency led their borrowing costs to fall into line with Germanys. Investors had previously demanded higher interest rates to lend to them, reecting that their currencies were prone to weakening and their government nances were less robust. The adoption of a single currency, along with no provision for a country to leave it, meant markets believed

there was little additional risk in lending to them relative to Germany. SO THIS LAID THE FOUNDATIONS FOR THE CURRENT CRISIS? There is undoubtedly some merit to the widespread belief the crisis was caused by proigate governments piling on debt during the good times. Yet creditor nations (notably Germany), are as much to blame for the problems by lending far too much. The shared currency gave a false sense of security about lending to peripheral economies. This ow of capital from the core fuelled property booms in the periphery, but left them high and dry when the lending taps were turned o at the onset of the global nancial crisis and recession. WHY HAVE YIELDS NOW BEEN RISING? When the nancial crisis began, markets began to dierentiate more between countries within the euro. Investors quickly began to lose condence in the ability of debt-laden countries in the euro zone periphery to repay their debts. This trend accelerated when it became clear Greece (followed by Ireland and Portugal) would need rescuing. The extra risks have been highlighted with Greek bondholders recently being asked to shoulder losses to reduce the nations debt burden, whilst the prospect of a euro zone break-up has become more conceivable as economies struggle under the weight of austerity and weak growth. COULD THIS HAPPEN TO THE UK? Although borrowing costs could climb rapidly if markets lose condence in the UKs decit reduction plans, they remain

very low by historical standards. Partly this reects that UK interest rates are not expected to rise rapidly over the medium term, given the relatively weak growth outlook. There are also other key dierences. Firstly, a long average maturity of the UKs debts (over 13 years) oers some breathing space to bring debts under control. Secondly, the Bank of England acts as the lender of last resort and would print money to buy the governments debts if necessary. IS THERE A SOLUTION? A number of proposals have been suggested, including the idea of issuing euro bonds (or bonds issued jointly by all members of the euro zone). Given the euro zones relatively low overall indebtedness in comparison to the UK and US, the euro zones borrowing costs could then fall to the historically low levels currently enjoyed in the UK and US. Alternatively, the European Central Bank (ECB) could eventually move to act as a backstop for euro zone government debt; perhaps by buying government bonds in sucient quantities to ensure yields do not rise above a certain threshold. WHY HAVE THESE NOT BEEN TRIED YET? Creditor nations are wary of turning the monetary union into a scal union, continually paying for the debts racked up by weaker members. Debtor nations would also have an incentive to over-borrow if they knew the ECB would always be there to help them out by purchasing their debts if needed. This is why countries such as Germany would prefer to have more control over the debts issued by others, including sanctions for any euro zone country running an excessive budget decit.

STERLING 2012 OUTLOOK

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STERLINGS PERFORMANCE & OUTLOOK

Last years report characterised the outlook for sterling as challenging. It cited tepid economic growth prospects, the impact of public spending cuts and a potential need to expand QE as key factors hindering the pounds progress. We preface this years report by again saying exchange rates are notoriously dicult to predict given the many factors which inuence them. Our aim is not to advise you, but to help keep you abreast of the latest opinions. Despite considerable volatility at times during 2011, sterlings value remained little changed against the US dollar and euro over the year as a whole. The pounds three-year performance is more mixed. From the start of 2009, sterling has recovered some ground versus the US dollar and euro. The pound has continued to slip against others, such as the Australian dollar and Japanese yen.

STERLINGS 2011 RELATIVE PERFORMANCE

GBP/AUD GBP/EUR GBP/JPY GBP/USD

10 % gain/loss from January 2011 values

-5

-10

04

04

04

04

04

04

04

04

04

04

STERLINGS 2009-2011 RELATIVE PERFORMANCE

04 -Ja n11
20

04

-M

-N

-A

-M

-S

-D

-F eb -11

-A pr -11
GBP/AUD

-O

-Ju

-Ju

ep

ug

ov

ec

ay

ct-

ar -11

n11

1 l-1

-11

-11

-11

-11

-11

Exchange rate data up to 9th December 2011

11

GBP/EUR

GBP/JPY

GBP/USD

% gain/loss from January 2009 values

10

-10

-20

-30

02 -A -0 pr 9

02

02

-Ja 02 n09

-O 02

02

-Ju 02 l-0 9

02

02

l-1 -Ju 02

02

-Ju 02

ct-O 09

-A -10 pr

n -Ja -10

-11 pr -A

-O

n -Ja -11

ct10

ct11

1 l-1

Exchange rate data up to 9th December 2011

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STERLING 2012 OUTLOOK 7

2012 OUTLOOK
In 2012, European leaders eorts to resolve the euro zone debt crisis are likely to remain at the top of the global economic agenda. Continuing developments, along with eorts to reduce public debt levels, will help shape the major economies relative performances. These issues will therefore play a key role for central bank decision-making, as policymakers try to counteract the adverse impact on recoveries. Our survey asked the experts what they think will happen to interest rates in 2012. Higher interest rates, and the potential for further rises, should make a currency more attractive to investors and strengthen its relative value. The interest rate outlook slightly favours sterling and the US dollar relative to the euro. The respondents are unanimous in believing UK and US interest rates are already as low as policymakers will take them. A small majority believes the ECB could lower interest rates again in 2012. Several respondents point to relatively little movement in short-term interest rates as one reason for thinking sterlings value might not change dramatically versus the US dollar and euro in 2012. A currencys value will also be determined by the health of its economy. A vibrant economy will typically attract greater investment and capital inows, and export more of its output. To invest in a countrys industry or to purchase its products, investors and consumers will need to purchase that countrys currency, leading to its appreciation. A currencys performance is therefore likely to be inuenced by the economys rate of economic growth and ability to avoid renewed recessions. Our survey asked the experts by how much they expect the major economies to grow during 2012. A clear majority of respondents believe the US economy will grow at a rate of 1.1-2% in 2012. A consensus view expects this to outpace the UKs recovery (with growth of just 0.1-1%), whilst a small majority expects the euro zone economy to shrink (<0%). John Hardy, Head of FX Strategy at Saxo Bank A/S, notes this as a supporting factor for the US dollar. In particular, he points to the US economy being further along the curve in its housing bubble, whilst weaker global growth translates to weaker German exports. Clive Dennis points to both the UK and euro zone being adversely aected by large banking systems as a proportion of GDP and tied closely by strong trade links, whilst Ken Dickson also thinks risk appetite will remain low favouring the US dollar.

INTEREST RATE OUTLOOK FOR 2012

EURO ZONE UK US

100 90 80 70 60 50 40 30 20 10 0

% of respondents

EURO ZONE ECONOMIC GROWTH FORECAST FOR 2012 <0% 0.1% - 1.0% 1.1% - 2.0%

Rise

No change

Fall

2.1% - 3.0%

We also asked how likely central banks are to expand QE in 2012. All three major central banks are deemed likely to expand QE beyond measures already announced. The BoE is seen as the most likely to extend QE, which would potentially be a negative factor for sterling. Ken Dickson, Investment Director at Standard Life Investments, suggests both the UK and US will need additional QE, but notes that monetary action in Europe is already behind the curve. Clive Dennis, Portfolio Manager at Schroders, believes a UK recession will be met with more QE (as a proportion of GDP) compared to the US.

UK ECONOMIC GROWTH FORECAST FOR 2012 <0% 0.1% - 1.0% 1.1% - 2.0%

LIKELIHOOD OF QE EXPANSION DURING 2012

US Federal Reserve Bank of England European Central Bank 1 2 3 4 5

2.1% - 3.0%

US ECONOMIC GROWTH FORECAST FOR 2012 <0% 0.1% - 1.0% 1.1% - 2.0% 2.1% - 3.0%

Rating (1= very unlikely, 5 = very likely)

STERLING 2012 OUTLOOK

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2012 OUTLOOK . . . CONTINUED

We also asked whether these economies would experience a doubledip recession within the next year. A double-dip recession refers to a recession which is followed by a short-lived recovery and then another recession. A recession is generally identied by two or more successive quarters of declining real GDP. More than 90% of respondents expect the US economy to avoid a double-dip in 2012, compared to slightly more than 60% for the UK. More than 90% predict the euro zone will slip back into recession in 2012. AUSTERITY MEASURES TOO SLOWLY OR TOO QUICKLY?
US

UK Euro zone 1 2 3 4 5

WILL THERE BE A DOUBLE-DIP RECESSION IN THE EURO ZONE?

Rating (1= too slowly, 5 = too quickly) We asked whether the experts think a European Monetary Union member state might leave the euro during the next ve years. We also asked what they see as being the main steps needed to be taken in order to resolve the regions debt crisis. YES NO A majority of the experts believe a country could leave the euro within ve years, with a minority thinking it might happen as soon as 2012. If the crisis is to be resolved, the experts see important roles for national governments and the ECBs QE asset purchases. Tim ODell, Portfolio Manager at Investec Asset Management, believes an important step would be a credible commitment to a scal union [i.e. closer coordination of the tax and spending policies between countries] and joint issuance of euro bonds. Anthony Grech, Head of Research at IG Index, would like to see more coordination as well as regulatory reform, oversight and discipline. He adds that in order to achieve this objective the EU may have to introduce a two-tier system to rehabilitate uncompetitive member states and shield the core from additional risks. John Hardy asks for clarity: either closer union, or breakup, adding that weak countries need to at least devalue if not leave. WILL A MEMBER LEAVE THE EURO? Within 1 year 1-3 years

WILL THERE BE A DOUBLE-DIP RECESSION IN THE UK?

WILL THERE BE A DOUBLE-DIP RECESSION IN THE US?

The sluggish outlook for European growth highlights the dilemma policymakers face in trying to balance austerity measures with the need to stimulate their economies. Our survey asked the experts whether national governments are moving too slowly, or too quickly, to reduce public debt levels. On average, the pace of spending cuts in the UK is viewed as about correct. Whilst many of the euro zones heavily indebted economies have embarked on tough austerity measures to restore market condence, some respondents would prefer debt levels to be reduced more quickly. The US, which lost Standard & Poors top credit rating for the rst time in 2011, is widely viewed as doing too little to control its debts. Neil Parker, Market Strategist at RBS, highlights US debt and decit reduction measures, along with US Presidential elections (and economic debate) as being signicant factors for the US dollar in 2012.

3-5 years Not within 5 years SUMMARY The challenges facing the global economy have scarcely diminished over the past year and appear set to continue into 2012. The current focus remains rmly on the troubles aicting the euro zone, whilst fears the region might move back into recession are likely to keep the euro under some pressure. The crisis is likely to impact on global economic growth prospects, as well as overall investor sentiment. Any escalation in the crisis could therefore also favour perceived safe-haven currencies such as the US dollar and Japanese yen, relative to commodity-led currencies such as the Australian and New Zealand dollars which often benet as investor sentiment improves. Economic data in all countries will also be closely watched; providing insight into how policymakers might react to support their economies. Please see page 12 for an economic calendar for the rst quarter of 2012.

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STERLING 2012 OUTLOOK 9

STERLING FORECASTS AGAINST MAJOR CURRENCIES (END 2012)

STERLING/EURO (GBP/EUR) FORECAST
70

STERLING/US DOLLAR (GBP/USD) FORECAST

60

% of respondents

50 40 30 20 10 0 1.00 or below 1.00-1.10 1.10-1.20 1.20-1.30 1.30-1.40 above 1.40

% of respondents

60

50 40 30 20 10 0 1.35 or below 1.35-1.45 1.45-1.55 1.55-1.65 1.65-1.75 above 1.75

Predicted exchange rate

Predicted exchange rate

STERLING/CANADIAN DOLLAR (GBP/CAD) FORECAST

60

STERLING/AUSTRALIAN DOLLAR (GBP/AUD) FORECAST

40

% of respondents

% of respondents

50 40 30 20 10 0 1.40 or below 1.40-1.50 1.50-1.60 1.60-1.70 1.70-1.80 1.80-190

35 30 25 20 15 10 5 0 1.40 or below 1.40-1.50 1.50-1.60 1.60-1.70 1.70-1.80 above 1.80

Predicted exchange rate

Predicted exchange rate

STERLING/NEW ZEALAND DOLLAR (GBP/NZD) FORECAST

70 60

STERLING/SWISS FRANC (GBP/CHF) FORECAST

40 35 30 25 20 15 10 5 0

% of respondents

40 30 20 10 0 1.70 or below 1.70-1.90 1.90-2.10 2.10-2.30 2.30-2.50 above 2.50

% of respondents

50

1.20 or below 1.20-1.30

1.30-1.40

1.40-1.50

1.50-1.60

above 1.60

Predicted exchange rate

Predicted exchange rate

STERLING/JAPANESE YEN (GBP/JPY) FORECAST

50 45 40 35 30 25 20 15 10 5 0 100 or below 100-110 110-120 120-130 130-140 above 140

We hope that you have found these opinions insightful, and above all useful. Please remember that predictions can only be based on information currently available. If you have a foreign exchange requirement in 2012, were here to help. You can stay abreast of market developments with our free regular online currency reports, or discuss your requirements with our currency specialists, by calling 0117 311 3257 or visiting www.HLCurrency.co.uk.

% of respondents

Predicted exchange rate

10 STERLING 2012 OUTLOOK

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Emergency exit
The Maastricht Treaty contained no provisions for any member to leave the single currency. Yet the on-going euro zone crisis has raised the question - could a country leave the euro?
Chris Saint Currency Analyst If the costs of euro membership exceeded the gains, we would expect a country wanting to leave would be able to. A break-up could involve one or more struggling members (such as Greece, Ireland or Portugal) opting to go it alone. Alternatively, disgruntled core countries (such as Germany) might decide they no longer wish to bail out their weaker neighbours. A break-up could see a two-tier euro created. MEMBERSHIP BENEFITS One of the main aims of the euro was to promote trade and investment. A shared currency would boost trade between members by making it easier to compare prices and removing exchange rate volatility. A single currency was also expected to make the euro zone more attractive as a destination for investment. No longer being able to devalue their currencies, many of the smaller economies also saw their borrowing costs fall signicantly. MEMBERSHIP COSTS These benets have been eroded during the crisis. Borrowing costs have soared, trade and economic growth have slowed, whilst peripheral nations have needed to impose austerity measures to keep the bailouts coming. However, providing they do meet their targets, for now they keep their euro zone lifeline. Further austerity is likely to lead to greater social unrest and higher unemployment. Their economies might lose competitiveness as the young and skilled workers seek brighter opportunities elsewhere.

BENEFITS OF LEAVING THE EURO If we take Greece as an example, wages, services and produce have risen in price far more in Greece than in Germany or France. This means Greece is not competitive. Its exports are not competitive and it is no longer the cheap holiday destination it once was. In the past the drachma was regularly devalued to make Greece more competitive, but this cant happen whilst it remains in the euro. Greece might therefore be tempted to exit the euro; devaluing its new currency in an attempt to restore competitiveness and avoid years of further austerity. OBSTACLES TO LEAVING THE EURO Firstly, there would be considerable technical diculties in reverting to a national currency. These range from having to print new notes and mint new coins, to reprogramming computers and parking meters. Any signs that a country was intending to leave the euro could cause widespread bank runs. Households and businesses might try to withdraw cash or transfer deposits from domestic banks to try to prevent their assets being converted into the new (devalued) currency. Fears could quickly spread to other struggling euro members, extending the associated chaos well beyond just the exiting country. To prevent an exodus of capital, banks would temporarily close and limits would be imposed on money owing in and out of the

country. This would cause huge disruption, at least in the short term. One of the most signicant issues is the threat to the wider banking system. French and German banks, for example, are heavily exposed to Greeces government debts and would face further considerable losses if they were repaid in a devalued currency. Banks would urgently need to be recapitalised to be able to withstand their losses, whilst a new credit crunch would see them lending less to households and businesses. At a competitive disadvantage to any leavers, countries remaining within the euro would also suer via weaker exports. Essentially, creditor nations face a choice: to pay directly by bailing out the struggling debtor nations, or indirectly through banking sector bailouts and renewed recession. In summary, there are good reasons for and against leaving the euro. However, keeping the euro in its present form will take signicant political commitments. WHAT DOES THIS MEAN FOR STERLING/EURO? The impact on the sterling/euro rate is uncertain. If a strong country left the euro, the currency might weaken sharply to reect the weaker health of its remaining members. In contrast, the euro could be more highly regarded if one or more weaker countries were to exit although whether this would outweigh the negative economic impact to those remaining and the reputational damage to the euro is unclear.

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STERLING 2012 OUTLOOK 11

HL Currency Service
Paul Dimambro Head of HL Currency Service The Currency Service is for private individuals and companies, who have a need to buy or sell a currency. Depending on your foreign exchange needs, we oer a range of transactions from same-day conversion and settlement of your funds, to xing the exchange rate for up to two years ahead. SAVE 000S ON CURRENCY CONVERSIONS Our competitive exchange rates mean you could save hundreds, if not thousands of pounds compared to a bank or building society. You could save as much as 3% on your transaction and there is no commission. GLOBAL CURRENCY COVERAGE From euros and US dollars to Canadian dollars, UAE dirhams and Swiss francs - you will receive competitive rates for all the currencies we cover from around the globe. EXPERIENCED AND HELPFUL DEALING TEAM You will have direct access to a team of currency specialists. Our aim is to help you to decide which type of currency transaction is best for you, whilst keeping you up-to-date with the latest foreign exchange market news. FLEXIBLE WAYS TO BUY FOREIGN CURRENCY You will have complete exibility with your currency transactions. With our range of dealing options, we will be able to tailor your transaction to match your currency requirements. Fast conversions and transfers Ways to reduce risk by xing the exchange rate The ability to x the exchange rate for a exible time-period The facility to make multiple payments at the same exchange rate REGULAR CURRENCY TRANSFERS ABROAD A great solution if you need to make a regular transfer overseas - for example, mortgage payments, living expenses, or paying your UK pension abroad. THE BEST INFORMATION Our Currency Research Centre and currency reports are free and available by visiting www.HLCurrency.co.uk. Our website includes exchange rates, charts, currency updates and our foreign exchange research. FAST, SECURE AND LOW-COST TRANSFERS The majority of our transfers are received in the destination bank on the same day as they are sent. We do not levy a transfer charge on amounts above 10,000. We charge only 15 for amounts below 10,000. CONVERTING BACK INTO STERLING There may be occasions when you need to change a foreign currency back into sterling. You could be working abroad or perhaps selling an asset abroad. Whatever the reason, we aim to save you money and make the transaction as easy as possible. A summary of the benets A dedicated currency specialist Low-cost fast transfers A variety of ways to reduce your currency risk Expert currency market information No commission on a global choice of currencies A low minimum transaction size of just 1,000 (just 250 for monthly transfers) Ways to convert a foreign currency back to sterling ANY QUESTIONS? If you have any questions about this service, please call us on +44 (0) 117 311 3257 to speak to one of our currency specialists.

FREE

BEGINNERS GUIDE TO BUYING PROPERTY ABROAD

Call us now on 0800 915 6794 to request your free copy, or visit www.hl.co.uk/propertyguide

12 STERLING 2012 OUTLOOK

www.hl.co.uk

Data release calendar

STERLING 12 January - Policy meeting 17 January - Consumer Prices 18 January - Unemployment 20 January - Retail sales

EURO 4 January - Consumer Prices 6 January - Retail sales 12 January - Policy meeting 1 February - Consumer Prices

US DOLLAR 6 January - Unemployment 12 January - Retail sales 19 January - Consumer Prices 27 January - GDP Q4/2011 - first estimate 3 February - Unemployment 14 February Retail sales 17 February - Consumer Prices 29 February - GDP Q4/2011 - second estimate 9 March Unemployment 13 March - Policy meeting; Retail sales 16 March - Consumer Prices

25 January - Policy minutes; GDP Q4/2011 - first estimate 3 February - Retail sales 9 February - Policy meeting 14 February - Consumer Prices 15 February Unemployment 17 February - Retail sales 22 February - Policy minutes 24 February - GDP Q4/2011 - second estimate 8 March - Policy meeting 14 March - Unemployment 20 March - Consumer Prices 21 March - Policy minutes 22 March - Retail sales 28 March - GDP Q4/2011 - final estimate AUSTRALIAN DOLLAR 9 January - Retail sales 19 January - Unemployment 25 January - Consumer Prices 6 February - Retail sales NEW ZEALAND DOLLAR 19 January - Consumer Prices 25 January - Policy meeting 9 February Unemployment 15 February - Retail sales 7 March - Policy meeting 23 March - GDP 7 February - Policy meeting 16 February - Unemployment 21 February - Policy minutes 6 March - Policy meeting 7 March - GDP 15 March - Unemployment 20 March - Policy minutes 9 February - Policy meeting 15 February - GDP Q4/2011 - first estimate 1 March - Unemployment; Consumer Prices 5 March - Retail sales 6 March - GDP Q4/2011 - second estimate 8 March - Policy meeting 30 March - Consumer Prices

CANADIAN DOLLAR 6 January - Unemployment 17 January - Policy meeting 20 January - Consumer Prices 24 January - Retail sales 31 January GDP 3 February Unemployment 17 February - Consumer Prices 21 February - Retail sales 2 March - GDP 8 March - Policy meeting 23 March - Consumer Prices 30 March - GDP

*Hargreaves Lansdown is not responsible for errors or omissions on this calendar. Hargreaves Lansdown Currency Service is a trading name of Hargreaves Lansdown Stockbrokers Limited which is a wholly owned subsidiary of Hargreaves Lansdown Plc. Company Registered in England & Wales No. 1822701, Registered Office, One College Square South, Anchor Road, Bristol, BS1 5HL, United Kingdom. (ref : HL Currency Service 1211).

0117 311 3257

STERLING 2012 OUTLOOK 13

(ref: HL Currency Service T&C 0410)

TERMS & CONDITIONS

Hargreaves Lansdown Currency Service
Hargreaves Lansdown Currency Service (HLCS) provides foreign exchange services to both personal and commercial clients. HLCS is a trading name of Hargreaves Lansdown Stockbrokers Ltd. Hargreaves Lansdown Stockbrokers Ltd is regulated by the Financial Services Authority, it is entered in the FSA Register and its register number is: 149970. Your account should NOT be used for speculative trading purposes. You should read and understand the terms and conditions that apply to our services before you commit to entering into an agreement with us. If there is any term that you do not understand, please contact us before proceeding as these are the terms we will rely upon. Additional terms and conditions may apply to other services we provide to you. 1. DEFINITIONS We, us, our and HL means Hargreaves Lansdown Currency Service (HLCS) or any other Hargreaves Lansdown Company. Hargreaves Lansdown Plc, One College Square South, Anchor Road, Bristol, BS1 5HL. Telephone: +44 (0) 117 311 3257. Email address: currency@hargreaveslansdown.co.uk 1.1. You, your, yours, yourself, means the person(s) to whom we provide our services under these terms and conditions and as detailed in the relevant application form(s). And also includes any person (or company) you ask to act on your behalf. We will treat you as a Retail Client and will provide you with information in a clear and straightforward way. 1.2. Associate means any holding company of HL or a subsidiary of any such holding company (as defined in the Companies Act 1985 as amended from time to time). 1.3. Terms means these terms and conditions and any versions which may supersede them at the time of any subsequent subscription and also encompasses the application form completed by you. 1.4. Payment Services Directive (PSD) is the regulation in the UK arising as a result of European Rules. It applies to payment services within the European and Economic Area (EEA). The regulations largely apply to electronic payments into and out of your account, but not cheques or Bankers Drafts, and means that banks (and Authorised Institutions) must meet the same standards when making and receiving payments. 1.5. Cleared funds are funds that are freely available, sent in to settle a trade. 2. GENERAL 2.1. You must be aged 18 or over. There is no minimum length to this contract. We offer the Currency Service on an execution only basis. This means we will not provide, and you do not expect personal advice. All currency transactions are entered into at your own risk and you cannot hold us responsible for any loss in value. No factual information that we provide to you should be regarded as personal advice. 2.2. We will not transfer money to or from non co-operative Financial Action Task Force countries. 2.3. We are not responsible or liable for your personal tax liability. 2.4. The currency service and exchange service itself is not regulated by the by the Financial Services Authority, however onward payments to and from your bank are regulated activities (business) under the Payment Services Directive (PSD). The protections in the PSD regulations apply to UK and EEA payments only and apply to transactions where both the payer and the payees payment service provider are located within the EEA and the transaction is in Euro, Sterling or another member state currency. It should be noted therefore that although we offer the same level of service and treat all transactions the same, those dealing with us from outside of the EEA or another member state are NOT afforded the UK legislative protections and should check their own states legislation and tax laws before undertaking a transaction with us. 2.5. Telephone calls to and from us may be recorded and monitored and they may be used in evidence in the event of any disagreement with us. These Terms are governed by the law of England & Wales (we will communicate with each other in English). The information contained in these Terms is based on our understanding of current legislation, and the practices of HM Revenue and Customs and HM Treasury. 3. APPLICATIONS 3.1. To open an account you must apply with a properly completed application form (either online or paper form as we allow). We may approach a third party (e.g. credit reference agency and/or Companies House) to confirm your identity, or any other person providing funds on your behalf and by dealing with us, we accept this as your consent. 3.2. We may also run additional verification checks at a later date should this be necessary. Where further information is required, to confirm identity, we may delay applications, or withhold settlement until adequate identification has been provided. 3.3. For each payment we ask for the reason for the transaction, it may on occasion, be necessary to ask for additional information in this respect. 3.4. We will not be responsible for any loss incurred by any delay to transactions where fully completed applications and verification has not been received by us. 3.5. If payment is made by a personal cheque not drawn on your own account, then additional identification procedures may be required (i.e. if a building society cheque is used or the funds are a gift). We may also refuse the transaction. 3.6. If you are resident outside the UK for tax purposes we may also need additional information. 3.7. You also agree to us sharing any information that we hold about you with a fraud reference agency should it be required. 3.8. We may refuse your application or dealing instructions; if we do this we will provide you with a valid reason for doing so (unless it is likely that doing so would breach Money Laundering regulations). This could be, but is not limited to: you providing incomplete or untruthful information, your failure to observe these terms and conditions, a disagreement or dispute with us, or a regulatory or legal requirement affecting us. 3.9. It is your responsibility to ensure all information you supply to us is true and accurate. You must tell us in writing, if you become aware of any errors or changes to your details. This is particularly important for your contact details and all bank account details for you, and any third party bank details. 4. NOTICES, INSTRUCTIONS, DOCUMENTATION AND COMMUNICATION 4.1. Please send written instructions to the address above. We may rely on any communication which we reasonably believe to have been made by you (or on your behalf) and you will bound by any such instructions and responsible for expenses incurred on your behalf. We cannot accept responsibility for any delays in us receiving the application form and no business can be undertaken until the original application form and supporting documents have been received and processed unless pre-agreed by us. 4.2. Where two or more people are contracted under a joint agreement, the liability of each and all of you under the arrangement will be joint and several and every arrangement or undertaking will be construed accordingly. If you have applied, or deal in joint names we will carry out instructions we receive from either or any of you. 4.3. All documents will be sent by post or registered post at your request (and expense). We are not responsible for any documents lost in the post or for any charges for replacement of lost documents. We cannot be held responsible for a delay or failure of delivery of any communication we send to each other including email. If we send an email to your email address or post to your address and it is seen by another person, we have not failed in any duty of privacy owed to you and we will not be liable for any losses, costs or expenses as a result. You must tell us if your name or contact details change. 4.4. We will supply to you on demand, copies of contract notes, vouchers and copies of entries in books relating to you, a reasonable charge may be levied for this (please ask us for details). We will keep records for a period of at least six years from the date of each transaction. If accounts are held in joint names, all communication will be sent to the first named person. 5. SECURITY 5.1. It is important for you to protect your account details and master passwords connected with your account and report any suspected theft or misuse of your account to us. You must contact us as soon as you become aware that any information has been lost or stolen or used without your authorisation by using the telephone number at the top of these terms. As long as you have acted in accordance with our instructions, you will not be responsible for your account being used after we have received notification from you, and if you are a victim of fraud you will not lose any money on your account. If you are NOT a victim of fraud, you are responsible for all instructions and information sent to us using your account and security details. 6. AMENDMENTS 6.1. We will give you notice in good time (at least two months where required under the Payment Services Directive (PSD), for amendments and changes to your Terms and Conditions of business with us); and in all other instances (outside of the PSD) 30 days notice will be given before making material changes or amendments to these terms. 6.2. Incidental changes (such as clarity, drafting and typographical amendments) will be made immediately and notified via an update to the Terms on the Hargreaves Lansdown Website and in printed form. 6.3. You have the right to close your account with us (without additional charge) before any material changes to terms take effect, subject to any transactions already previously entered into, for which you will potentially be liable for any costs incurred for closing out your transaction. 7. CLIENT MONEY 7.1. Monies will be held in a client bank account with Lloyds Banking Group Plc or other bank(s) or Authorised Institution(s) we may choose. Client Bank Accounts (client trust accounts), are designated as trust accounts and are segregated from our own funds, although may include the balances of other clients. Your account with us is NOT a payment account and monies are not held in individually designated accounts; they are pooled with the money of other clients and are separate from all funds belonging to us. 7.2. The banks (Authorised Institutions) we use are not Associates of Hargreaves Lansdown and we do not accept liability for any default/failure by any bank or any other such institutions. You may be entitled to compensation from the Financial Services Compensation Scheme (FSCS) if any 3rd party institution we may use is declared in default or insolvent. Further information about compensation arrangements is available from the FSCS, please contact us should you require further details. 7.3. All payments must be paid by electronic transmission such as (debit card or CHAPS same day electronic payment) or, when agreed in advance, by cheque. We do not accept payment in the form of credit cards, BACS 3 business day clearing (including internet banking electronic transfers unless pre-agreed by us) or cash. 7.4. Cheques should be made payable to HLSTK FX Client A/C.

These terms and conditions of the Hargreaves Lansdown Currency Service replace all previous versions including HL Currency Service T&C 0409.
8. DEALING 8.1. Dealing instructions may be given by telephone, or, where prior agreement has been made, in writing. No instructions will be accepted by fax or email unless agreed in advance, or on a per transaction basis at our discretion. 8.2. Any instructions you give to us form a commitment from you which cannot subsequently be amended and or revoked by you. Where a delay occurs because the relevant exchange closes for any reason we will complete the deal as soon as reasonably practicable after trading resumes. However we have no control over the price at which your deal is executed the following day. 8.3. We may combine your transaction with deals of other clients (aggregation) if we reasonably believe that we will obtain a more favourable price or reduce transaction costs. However, on occasion this may result in a less favourable price than if your deal had been executed on its own. 8.4. We may review and alter your trading limits, seek references, request cleared funds before and/or after placing a deal. This may delay your transaction and mean you are unable to deal immediately. 8.5. Where you give us instructions by telephone we may repeat to you what we understand are your instructions. If you do not correct these repeated instructions then they will be accepted as your instructions, we will act upon them and you will be bound by them even if they do not reflect your intended instructions or you change your mind. This applies whether or not you confirm them or remain silent. 8.6. Fees, costs, taxation and any other charges associated with executing deals will be the responsibility of the client and where appropriate may be paid by deduction from client balances. All interest earned on cleared client balances will belong to us unless prior agreement has been made to pay this to you. 8.7. We will, from time to time, accept limit instructions where we agree to monitor an exchange rate on your behalf and endeavour to contact you once the rate moves to your chosen level, when we will contact you to see if you wish to proceed. This will be an informal arrangement between us and you and limit instructions will be carried out on a strictly best endeavours basis. We cannot however be held liable should we, for whatever reason, not be in a position to monitor a particular currency nor be able to contact you to establish whether you wish to proceed. We will not proceed without your consent. 8.8. Exchange rates are quoted to you at the time of each transaction. 9. CONTRACT/DEAL TYPES - GENERAL DEALING 9.1. Spot Contracts - will be entered into by us once a 1% deposit of the face value of the deal has been paid up front by you. We may increase this requirement to a level of our choosing at which time we will inform you and tell you the reasons for it. A Spot transaction will have a relatively short settlement period, therefore you must be sure that you will be in a position to transfer cleared funds by the payment date. We will only make onward payment of the currency bought once cleared funds have been received in full from you. If you are exchanging funds back into Sterling, settlement times and deposits may be increased and cleared funds may be required before we proceed. 9.2. Forward Contracts (including: Forward Outright deals, Time Options and Draw Down deals). We will only place any type of Forward exchange deal when accompanied by at least a 10% deposit. Deposits will need to be received by us as cleared funds before we accept any type of Forward deal instruction. 9.3. We may require you to deposit further funds at any time up to the settlement date to allow for changes in the underlying exchange rate. Additional funds must be received by us as cleared funds within 24 hours of us notifying you. 9.4. The amount of additional payment we require will be decided by us in relation to our perceived degree of risk. 9.5. Should the amount held by us as a deposit against any Forward deal then rise above the required percentage of the total value due to fluctuations in the exchange rate it will remain on deposit. We will not transfer any excess back to you, but it is off-settable against the final payment. We will only complete any Forward deal on or after the settlement date and once we have received the balance owed from you as cleared funds. 9.6. It is your responsibility to remain contactable for the duration of all types of Forward deal. We may need to contact you at any time in relation to an increase in the deposit requirement. You must ensure that we are kept informed of any likely periods that you will be uncontactable (e.g. holidays), with additional funds lodged to cover any potential margin issues. 9.7. Failure to respond, or if we are unable to contact you using the details you have provided to us, will result in a breach of these terms. 9.8. Time Options - are a type of Forward deal. You can request delivery of the currency bought on any business day between the near date and the expiry date of the deal as one lump sum payment. You must give five business days notice before the required delivery of the funds. You must ensure cleared funds for the balance of the deal (less the deposit paid) reaches our Client Bank Account 3 business days before the settlement date. Should the deal continue to expiry, we will require cleared funds at least 3 business days before the final settlement date. 9.9. Draw Downs - are a type of Forward deal. The first and last permissible date for a Draw Down will be determined at the outset. You must give five business days notice before each Draw Down is required and cleared funds are to be received in our Client Bank Account at least 3 business days prior to the individual Draw Down date. We will only be able to make an onward transfer once cleared funds have been received by us. At least a 10% deposit must be maintained at all times, irrespective of the value of the contract or the

14 STERLING 2012 OUTLOOK

length of time remaining. Draw Downs will be limited to a maximum of one per month, unless previously agreed by us. 9.10. The payment date is the date on which we require cleared funds from you. The payment date will be clearly shown on your contract note. 10. REGULAR CURRENCY TRANSFER PLAN (RCTP) 10.1. You may make regular Direct Debit payments (Sterling only). Payments will either be based on a fixed exchange rate (using Forward deals), or on a variable exchange rate where the amount of Sterling taken from your bank account is fixed. 10.2. If you choose to invest on a monthly basis, payments will be requested from your account by Direct Debit on the 7th day of each month, or the next working day if the 7th is not a working day. Money will normally leave your account on the same day. No interest is payable by us on your contributions between the date your payment is collected and the date the onward transfer is made. Onward transfers to the receiving bank account will be made no later than 5 working days after the Direct Debit collection. The funds will be typically cleared in the receiving bank two working days later. 10.3. If payment from you is not received, we may make the onward transfer on your behalf as if payment had been received, and we will expect you to make payment by other means. You may be charged for this, please see charges section 14. 10.4. The minimum monthly transfer is 250; RCTP payments under 500 (or foreign currency equivalent) per month will be charged a transfer fee of 7 for each payment; no transfer fee will be levied on payments above 500. The minimum contract length under the RCTP is six months. 10.5. Any instructions to buy or sell currencies, once accepted by us forms an irrevocable commitment by you to buy or sell in accordance with your instructions. Any changes to the Direct Debit instruction must be received at least 10 working days before collection. You cannot change the receiving payment institutions/bank details between the Direct Debit collection date and the settlement date for that month. 11. ADDITIONAL TERMS FOR THE FIXED RATE RCTP 11.1. Fixed rate regular payment instructions will be accepted on receipt of a deposit equal to at least two months payment where we have fixed the exchange rate for up to one year, and at least three months payment where the exchange rate is fixed for over one year. 12. ADDITIONAL TERMS FOR THE VARIABLE RATE RCTP 12.1. Variable rate regular payment instructions will be accepted only after we have received from you the first monthly transfer by debit card & completion of a Direct Debit instruction taken by telephone. 12.2. The percentage between the underlying bid rate (sell rate) at which we buy currency and the rate offered by us to you for the first months transfer will be no wider for subsequent monthly transfers, for each RCTP arranged. 12.3. The exchange rate for subsequent monthly transfers will be fixed on the 10th of each month or the nearest working day of our choosing if the 10th is not a working day. The amount converted each month will be the Direct Debit collected less any transfer charges applied. Contract notes will be issued by e-mail confirming the exchange rate achieved for each months transfer. 12.4. If we are unable to collect a payment on the due date, then no variable exchange rate will be fixed or transfer arranged for that month until alternative payment has been received. However, collections of further Direct Debits will be attempted for subsequent months, until cancellation notification of the Direct Debit has been received by us. 13. PAYMENT 13.1. Cleared funds to pay for all transactions must be available before the settlement date. In practical terms this means that monies from a debit card payment, CHAPS payment, Direct Debit or cheque must be cleared funds with us on the payment date, which for Spot trades will be one business day before the settlement date. For any type of Forward the payment date will be a minimum of three business days before the settlement date. 13.2. We will process payments on the settlement date if we have cleared funds from your bank for the total amount owed including any fees or charges, therefore it is vital that cleared funds are received on time. Onward payment will take place on the settlement date when possible, but is subject to delay where banking electronic transfer cut-off times dictate. We will not be held responsible for the late payment or delivery of funds owing to banking procedures. This means you will need to check with your bank the processing times for their payments. 13.3. A Correspondent Bank (an agent bank) is one that performs services for a paying or receiving bank. A correspondent bank covers the limitations of a smaller bank, a foreign bank, a merchant bank, or other financial institution that needs to outsource certain procedures and services not available at the paying or receiving bank. We will take no responsibility for any costs, expenses or charges accrued by you, the correspondent bank, receiving bank or any other third party as a result of a delay by us making a transfer as a result of late payment on your behalf. 13.4. When you give us a payment instruction you must give us the sort code and account number for payments in the UK, or the equivalent information for payments outside the UK, and any other details we may ask you for, such as the name of the person you are sending the payment to, so we can make the payment. You are responsible for checking the details are correct. We will not be liable if your payment is delayed or sent to the wrong person because you gave us the wrong details, we will use reasonable efforts to recover the payment and if we manage to do so we may charge you our reasonable costs. Onward payments made to a bank in the EEA will be made on the settlement date (provided this is a working day), you will need to check with your receiving bank when you can draw on funds. If you ask us to make a payment to a person in another currency or with an account at a bank outside the EEA you can ask us for details about how long the payment will take to arrive, we will not be able to control exactly when the payment will be received by the foreign bank.

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If you ask us to make a payment on a future date, we will make the payment that day. If the payment falls due on a non-working day we will make the payment the next working day. 13.5. In the event of you failing to make all or any of the payments required under these terms we will be entitled to close out any existing positions at the current market rate without giving notice to you and we will charge you any associated costs. This includes using any or all of your deposit against any losses suffered by us when unwinding your position and associated costs and liabilities. We will return to you the balance (if any) of your deposit. 13.6. We accept no responsibility where public holidays, both in the UK and overseas, adversely affect or delay settlement dates. 13.7. Cheques. In practical terms, short settlement periods mean that cheques need to be sent first class mail by return (dont forget the possibility of postal delays and cheque clearance times). In order for us to meet the tight settlement deadlines, it is vital that cheques can be paid in immediately on receipt and are met on first presentation. 13.8. Late payment. We may refuse to carry out your instruction if you do not have sufficient cleared funds or your instructions are not clear or correct or; If you fail to make a payment in full, on, or before the due date for payment we may immediately cancel, terminate and/or suspend any deal with you without having any resulting liability to you. If you fail to pay us the monies relating to a specific transaction in respect of which we have purchased the relevant currency then we may treat the transaction as cancelled by you and you will forfeit all rights. We can also refuse your instructions for legal reasons. 13.9. We may liquidate such positions to discharge such monies and the following will apply: If the liquidation of the currency position realises a net value higher than the amount of monies due to us relating to the opening of the position, we will be entitled to retain for our benefit this additional value. We will not be required to apply it against any other monies or liability that you may have to us; or, if the liquidation of the currency position realises a lower value than the amount of monies due to us relating to the opening of the position then the net difference in value will become a debt due from you to us and payable immediately. 13.10. In addition our charges and the costs of making any such transaction will apply. Failure to arrange timely payment may be interpreted as a breach of your deal with us. 13.11. We retain an unconditional right of liquidation of any positions under our control where funds have not been paid to us by the due date. When liquidation occurs on a Forward deal, the deposit held by us will be returned to you, less any fees, charges or losses, on the original settlement date and not before. Where funds have not been paid by the due date we may at our discretion hold the converted currency for up to seven days while we await payment from you. We reserve the right to charge you interest in this instance. If we are required to place a Swap transaction (for example where your transaction is closed and immediately re-opened with a later settlement date) or other derivative transaction, for an earlier date than the original settlement date or for a later date than the original settlement date, then we may keep any revenue generated by the difference in the exchange rates. 13.12. Where an IBAN (International Bank Account Number) is required but not provided by you we may ask you to cover any charges incurred in sending the payment. Where a SWIFT (Society for Worldwide Interbank Financial Telecommunication) or BIC (Bank Identifier Code) is not included & where it is necessary, we reserve the right to use the relevant headquarter BIC/SWIFT code at your own risk. 13.13. Banks are required to process electronic payments within their published cut off times following the day of the instruction. Instructions received after cut-off times or on days that are not business days will be treated as having been received on the next business day. Please refer to your relevant bank or Authorised Institution for their specific individual cut-off times in relation to the receipt and dispatch of electronic payments. We cannot be responsible for the late arrival or late delivery of funds that may arise from the actions or procedures of a third party or Authorised Institution. Once payments have been sent by us to the recipient using the details provided then we have fulfilled our obligations under these terms and are no longer responsible for the timely receipt of funds. 13.14. We shall act in accordance with the terms set out here for the processing of payments and the timing of transactions. 14. CHARGES 14.1. Transactions of under 10,000 (5,000 for Corporate Clients) will be charged a transfer fee of 15. 14.2. Transfers made via the Regular Currency Transfer Plan will be charged a transfer fee of 7 for individual transfers made under 500 (or foreign currency equivalent). 14.3. The exchange rate offered to you will not be the same as the rate obtained by us. If you have been referred to us by an agent or third party, a share of any revenue may be paid to the referral agent. 14.4. Each separate Draw Down transfer will be charged a transfer fee of 15. 14.5. Where cheques contain errors or are returned unpaid from a bank, we may make an additional charge of 20 and you will be expected to make good the payment immediately. 14.6. When payment is not received by the payment date, we may insist that the currency position is rolled Forward (Swap) for a later payment/settlement date or closed-out. In this case, you will be responsible for all associated fees, costs and charges and will be charged a rebooking/close-out fee of 20. 14.7. If the late payment relates to a RCTP, we may closeout, or roll forward (Swap) any future deals and you will be responsible for all associated fees, costs and charges and will be charged a rebooking/close-out fee of 20 for each monthly deal. In the unlikely event that we are charged interest for holding a currency with an Authorised Institution we will pass the cost on to you. 14.8. All Charges will be detailed in your contract note. 14.9. Interest Charges - We may charge interest on any outstanding sums due for payment to us, which are not paid in full by the settlement date. Interest will be charged at a 20% flat rate and may be calculated and charged on a daily basis. Any interest charge may be deducted from client monies held by us. 14.10. Other Bank charges - Some overseas and UK banks charge their clients additional fees to transfer or receive foreign currencies. All charges arising from receiving, intermediate or correspondent banks in respect to transfers made to or from these banks will be your responsibility. It is important to check before you give us instructions if your receiving bank, or any other bank acting as correspondent, intermediate or agent, will make additional charges in relation to transactions carried out through each bank that may be involved with the transfer of funds. 15. CONTRACT NOTES 15.1. You will normally be sent a Contract Note when you place a deal. If any details are wrong or if you receive notice of a deal you do not recognise you must contact us immediately. You will only receive a contract note at the outset of your fixed rate RTCP and not for each monthly payment. 15.2. Contract Notes may be sent by post or transmitted to you by fax or email as we agree with you. 16. DEATH 16.1. Upon death these terms will be binding on your representatives and where a joint account is held, we will be entitled to treat the survivor(s) as the only person interested in any monies which are subject to these arrangements. 17. TERMINATION 17.1. These terms may be terminated by you or us without penalty and without prejudice to transactions already started. On termination you will pay all outstanding costs of any transactions effected prior to termination and our charges. 18. UNDERTAKINGS AND LIABILITIES 18.1. We are not responsible for default (failure) of any third party unless it is an Associate who is the nominal (named) holder who has custody and is undertaking the safekeeping of your money. 18.2. We will exercise due care and diligence in the conduct of business but will not be liable to you for any depreciation in the value of any currency arranged or purchased on your behalf. 18.3. We accept no responsibility for any loss or delay caused in the payment or transfer of funds to us. Without your consent we will not commit you to any financial obligations beyond the amount you have paid. Detailed records of all your transactions will be kept. 19. DATA PROTECTION 19.1. We will use the information we hold about you to manage your account and to help us provide a high level of service to you. We will also use it to keep you informed by email, telephone, fax, post or other reasonable means of other services which may be of interest to you. If you would prefer not to receive such information please tell us. All personal information will be treated in confidence by us and will not be given to any third parties, except where required by law, or where you have given us your permission. You are protected under the Data Protection Act 1998, and under these terms you are able to have a copy of the information that we hold about you and correct any inaccuracies (we may charge a nominal admin fee for providing copies). We will keep records for a minimum of six years from the date of your last transaction. We may record telephone calls with you. 20. CONFLICTS 20.1. We are determined to treat our clients fairly at all times. In case conflicts arise between the interests of Hargreaves Lansdown, our employees and our clients and also between clients, we have a policy in place to ensure that we identify and handle conflicts fairly and treat our clients with honesty and integrity at all times. You can read a copy of our full Conflicts Management Policy on our website at www.H-L.co.uk/conflicts 21. ASSIGNMENT AND DELEGATION 21.1. We may appoint any person (whether an Associate or not) to advise on or perform our functions or responsibilities under these Terms and we may provide information about you and your transactions to any such person. This contract may be assigned in whole or in part, but only if this does not offer you a poorer service and if your rights are not prejudiced by the assignment. 22. COMPLAINTS PROCEDURE 22.1. We do everything we can to provide you with the service you want and expect, but should you have cause to complain we have a written policy, for our handling of complaints and how we ensure each complaint is dealt with promptly and fairly. If you feel that we havent resolved your complaint satisfactorily you may then want to contact the Financial Ombudsman Service, and we will provide you details of how to do this. 23. FINANCIAL SERVICES COMPENSATIONS SCHEME (FSCS) 23.1. You may be entitled to compensation from the scheme if we cannot meet our obligations in full, please note that due to the eligibility rules of the FSCS some transactions will not be covered, as the scheme only applies to regulated business. To find out more see the schemes website www.fscs.org.uk or call them on 020 7892 7300. 24. LEGAL ACTION 24.1. In the event that we need to undertake any legal action against you for recovery of a debt you will be liable for any and all legal expenses incurred by us in recovery of that debt. If due to an administration error we pay you more than the correct amount of settlement monies and/or funds, the amount of overpayment will be a debt due from you to us and must be repaid to us immediately.

HLCS0410

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STERLING 2012 OUTLOOK 15

HL Currency Service Private Client Application Form

Instructions for completing the application form
1 2 3 Before completing this form, please make sure you have read and understood the Terms & Conditions of the service. Please complete all necessary sections in BLOCK CAPITALS with a black or blue pen, remembering to sign in section 7. To comply with Anti-Money Laundering Regulations, we require photocopies of two documents, for all applicants including existing Hargreaves Lansdown clients. Both documents can be from List A, or one document from List A and one from List B. If you are applying in joint names, you will need to supply identification documents for both account holders.

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LIST A
Clear photocopies are sufficient
Valid Passport Valid photocard driving licence or valid (old style) full UK driving licence National Identity Card (non-UK nationals)

LIST B
Clear photocopies are sufficient
Current council tax demand letter, or statement Current bank statement, or credit/debit card statement, issued by a UK regulated financial sector firm (not internet printed or more than 3 months old) Utility bill (not internet printed or more than 3 months old)

NB. If you are a non-UK resident you will be required to send certified copies of the documents above. The copies can be certified by an embassy, consulate or high commission of the country of issue, or by a lawyer or attorney.

If you are transferring to an account which is not in your own name, please provide verification for the purpose of the transfer, e.g. an invoice, letter from a solicitor, property agreement, etc. In most cases a photocopy of these documents will be sufficient. If the third party is an individual, e.g. a relative, we will require identification documents for them, as per point 3 above. Non-UK residents need to supply certified documents. If you are transferring to an account in your own name you will not be required to send additional verification.

Application checklist
Have you (please tick): 1. Completed sections 1 to 6 accurately and in full? 2. Signed your name(s) in section 7? 3. Enclosed a photocopy of a document(s) from List A above and from List B above? 4. Enclosed verification if you are transferring to an account which is not in your own name (see point 4 above)?

What happens next?

Once you have completed the application form overleaf, please return with the necessary supporting documents listed above, in either the pre-paid envelope provided or, to: Hargreaves Lansdown Currency Service, One College Square South, Anchor Road, Bristol, BS1 5HL. Once your account has been opened we will notify you by post.

Do you have any questions regarding this application form? Call us now on +44 (0) 117 311 3257

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www.hl.co.uk

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1. Personal details - All details must be completed

Title(Mr/Mrs/ etc) Full forename(s) Permanent residential address Surname

2. Joint holder details - Joint holder details below if applicable

Title(Mr/Mrs/ etc) Full forename(s) Permanent residential address Surname

Postcode Country of residence Date of birth Occupation Nationality Country of residence Date of birth Occupation

Postcode

Nationality

3. Contact details
Daytime telephone number Email address Mobile phone number

4. Currency requirements
Reason for transaction (e.g. overseas property purchase) Currency (if known)

5. FREE online currency reports

Tick here if you would like to be registered for free online currency reports (these are typically sent weekly).

6. Receiving / beneciary bank details (details can be provided at a later stage if not currently known)
Transferring to a third party? If you are not transferring to an account in your own name, please read point 4 overleaf.
Payee name/ Beneficiary name IBAN/ Account Number Swift/BIC/ Sort Code Bank name and address Transfer reference (if applicable) ABA/BSB number (US/Australian Dollar only)

7. Declaration & signatures

I/We confirm I/we have read in full, agreed to, and retained a copy of the Terms and Conditions of the Hargreaves Lansdown Currency Service (HL). I/We authorise HL to make appropriate enquiries to verify my/our identity to the satisfaction of Anti-Money Laundering regulations and this may include an electronic check with a credit reference agency. If referred to HL by an affiliate, I/we agree information relating to my currency transactions may be shared between the two parties only. I/We declare the declaration and information above is correct to the best of my/our knowledge and belief and undertake to notify HL without delay of any changes to these particulars. I/We understand and accept HL accepts no responsibility for any loss incurred as a result of any delay in receipt of this application form.
Applicant signature Joint applicant signature

X X

Date Date

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