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Buying Currency for Holiday: What You Need to Know and What Can Affect the Exchange Rate

On the face of it, buying currency for international holidays can seem like a straightforward process. You simply go to your bank or the airport exchange counter, buy the currency you need, and get on to the business of going on holiday, right? Yes, that's one approach, but things get more complicated when you look more closely.

When it comes to the currency exchange market, the devil is indeed in the details. In this post, we'll try to flesh out some of the most important ones. We'll start with the top five things you need to know to secure the best currency exchange rate and avoid foreign money transfer scams.

Five Things You Need to Know about Buying Holiday Currency

The following five bits of knowledge will give you a great place to start in acquainting yourself with the currency exchange market:
     
  1. It's always best to plan ahead. Your currency purchase is an investment like any other. Therefore, it's imperative that you avoid making last-minute decisions when buying foreign currency for your holiday. With a little knowledge and diligence, you can give yourself the best chance of securing the best exchange rate.
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  3. Although reliable institutions like your bank and the post office will work in a last-minute pinch, it's still best to avoid them if at all possible because they charge significantly higher rates than specialty firms like AIRGOFX.
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  5. Ordering currency online is much cheaper than last minute exchanges at the airport. This is one of many reasons to plan ahead.
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  7. Prepaid credit cards are a safe and convenient way to make purchases and withdraw necessary funds from ATMs overseas, but they can still be subject to fluctuating exchange rates. When purchasing or using a prepaid travel card, make sure you understand what exchange rate you're actually paying and if there are any additional hidden fees.
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  9. Be on guard against dodgy overseas vendors who offer to bill you in your home currency. While seemingly convenient, the practice of 'dynamic currency conversion' often results in a much higher exchange rate. To prevent this, always insist on paying your bills in local currency.
  10. What Sorts of Things Affect the Exchange Rate?

    As you probably know, the currency market does not play out in a vacuum. Just like any other investment or purchase, it's buffeted, sometimes violently, by a variety of complex factors. Obviously, a comprehensive discussion of these factors is well beyond the scope of this posting, but two of the most influential right now are the Brexit movement in the UK and the Trump phenomenon in the United States. Here's an overview of the effects that the Brexit and Trumpism are currently having on the world currency exchange market.

    The relationship between the Brexit and currency market has been complex, to say the least. The pound took a hard hit in the immediate aftermath of the Brexit vote before rebounding a bit a few weeks later. Then it declined sharply again and rose a bit, etc. No matter what the long term holds, the present situation seems clear. Whenever strong sentiment in favor of the Brexit is widespread, the pound seems to take a nosedive, especially when economic indicators in the Eurozone are strong.

    The best strategy involves patience and vigilance. This is where planning ahead truly comes to the fore, as you will benefit greatly by tracking the effects that the Brexit discourse is currently having on the exchange rate. Take right now, for instance. As of this writing, the pound is performing at an 8-year old against the euro. Depending on the size of your transaction, you could stand to lose hundreds of pounds if you exchanged for your holiday today. But this information only helps if you're both aware of it and prepared to wait for things to improve.

    Needless to say, the Trump presidency has sent chaotic ripples throughout the world's currency markets. While the American economy has been in reasonably good shape since Mr. Trump gained the presidency, his erratic leadership has had wildly vacillating effects on the dollar's performance against other currencies.

    Just like with the Brexit, vigilance is the key to capitalizing (or avoiding disaster) on the Trump presidency. Pay attention to what Mr. Trump is saying and doing on a week to week basis and make your decisions accordingly. A good rule of thumb might be something like this: strongly consider exchanging for the American dollar in the immediate aftermath of one of Trump's isolationist or trade-war tirades. You won't have to wait long.
    Published date: 27/10/2017

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