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The carry-over charge is one of the finance charges that is associated with the storage of commodities or foreign exchange contracts. Specifically, a carry-over charge is applied when the original delivery date on the commodity is revised to a later date. The exact amount of the charge is determined by several factors, including the amount of time involved between the original and revised delivery date, and any shifts in costs of maintenance of the commodity during that time frame.
A shift in the delivery date of a foreign exchange contract or a commodity can take place for a number of different reasons. In some instances, the revision of the delivery date may be accomplished through negotiations between the buyer and the seller. When this occurs, calculations of the approximate carry-over charge are often discussed in advance. This ensures that all concerned parties are agreeable to the anticipated financial advantage that will result from the change in delivery date, as well as ensure that the extra cost of the carry-over charge can be absorbed.
In other situations, changes in the marketplace may dictate scheduling a new delivery date. Once again, it is important that an investor consider all pertinent information connected with the revision of the date. Along with projecting the change in anticipated profit based on the delay, the investor should also look closely at the estimate of the carry-over charge before choosing to move forward with the venture.
Many people may be surprised by the fact that a carry-over charge is not always a significant factor. This is especially true if there is a relatively short period of time between the original and the revised delivery dates. Also, if the purpose of the delay is to take advantage of shifts in the market that will enhance the value of the commodity or the foreign exchange contract, the difference in profit may be more than enough to cover the carry-over charge.
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