MoneyExchange Rates

Often it’s not until we’re planning an overseas trip that we realise how much exchange rates have moved since our last holiday. Maybe last time we Australians went to the USA, we could get US$1 for each Australian dollar. Not lately. Not for quite some time in fact.

We’ve see our Australian dollar moving downwards this year by 18%. That really affects our buying power. And that has a knock-on effect if we are travelling through Asian countries which base their currencies on the US$.

Losing Purchasing Power

When banks are paying interest rates of 2.5% per year, an you’re losing purchasing power by 18% a year, you can see how your savings are being affected. And its not just when we travel, it applies whenever we buy imports. See what has happened to the Australian dollar since August 2014:

Graph US$ v A$

(c) Yahoo7

Holding foreign currencies might sound daunting, but it doesn’t have to be. If we want to put some of our assets into foreign currencies and we are willing to take the risk of the exchange rate going against us (an it certainly can) then we could think of holding limited amounts for the sake of diversification.

Warning NoteThis is not financial advice.

It is not investment advice.

You must seek that from a licensed financial advisor, which I’m not.

But I just want to tell you that if you would like to hold some of your savings in foreign  currencies, just ask your bank if they can help you. The front desk teller might give you a blank stare, but if you ask to speak to a manager you might find that your bank offers accounts in different currencies. They might not advertise these services strongly because it’s not what their mainstream client wants.

It depends how internationally focussed the bank is. I found that the HongKong Shanghai Bank in Australia (HSBC) allows holdings in several other currencies. HSBC clients can hold US$, Australian$ and Euro savings accounts, without leaving Australia. To withdraw money from these accounts, the countervalue in Australian dollars will be paid.

Foreign Stock Markets

Another way to diversify into foreign currencies is to invest in another country’s stock market. If stocks are priced in that country’s currency you are in effect holding that foreign currency. However, you must check the regulations  – there may be higher brokerage charges and perhaps there will be withholding taxes levied on dividends. In Australia I use NABtrade, but any international stockbroker should be able to explain charges and regulations to you. I know in the case of US securities you have all the above, plus you may need to complete declarations of ownership in relation to money laundering regulations.

Foreign Stock Market Index Funds

How to choose which foreign stocks to buy? If you don’t know one foreign company from another, think about buying a security that represents the whole index of that particular stock market. These are called ‘Index Funds’. The underlying ratio of stocks in the index fund represent the stocks that make up that particular stock index. It might be less exciting, but at least you can hold a number of industry categories across the board.

Checking Exchange Rates

I downloaded an App called ‘Forex Money Transfer’ which will instantly indicate the value of my favourite foreign currencies against the Australian dollar and gives graphs for 1 day – 3 year time frames.

Checking Foreign Stock Markets

There are Apps for this too. Once you know the stock market you want to follow you search the App store for an App to cover that market.

Need more information? Send an email through the contact page.

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