Taking advantange of exchange rates...?

[JohnEZ]

Hi everyone,

 

I don't even know if this concept is legal, so if it's not, just tell me. (what a way to begin a post!)

 

Anyway, I was wondering... let's say the value of the British Pound slips a bit this winter, and I exchanged $500 USD for whatever equivilent in pounds. Then let's say the value of the pound goes up in the summer a greater percentage than the US Dollar does. So I exchange my currency again....

 

It seems to me that I would have a greater amount of money in USD than when I started, would I not? Now I have not taken a course in economics or anything, so for all I know one might break even. I don't know the legalities surrounding this, but I've always been curious about this. :)

 

Thanks,

-John

[MichTraveler]

I don't know why this would be illegal. Currency rates, like stocks, bonds, and other commodities go up and down. The tough part is predicting which will occur. There is usually a fee to exchange currency, so even if you have a 50% chance of up or down, you need to take the fee into account.

[ciderapple]

There is nothing illegal about it at all.

 

But why would you want to risk doing that? you don't know what the exchange rates are going to do, do you?

 

I manage my money on both sides of the atlantic, as a Brit temporarily living in the USA. I have seen the exchange rate go from 1.6 -1.9 and back again over the last 2 years, anything over 1.5 is good to me.

 

I have unintentionally lost and made pennies when I have bought something with a UK card and returned it later!

[JohnEZ]

Both of you are absolutely right; it would be hard to predict what would happen. It's just that I've always wondered if this concept could--in theory, that is--work.

 

Now if only I could find a currency that actually follows a general trend. :p

 

Thanks!

-John

[gillmom2]

Kramer had this idea on Seinfeld with returnable cans.... Just Kidding. The only time I think this would have been a good investment strategy is when the US dollar had a huge slide against foreign currency- the Euro among others- about 2-3 years ago.:)

[erik]

There are actually people who invest in currency for a living. The practice is called arbitrage and if you know what you're doing (I dont!), you can make tons of money.....or lose it. :) You can find more information here if truly interested.

 

http://en.wikipedia.org/wiki/Arbitrage

[iancal]

If you are cruising, always request shipboard billing in the ship's currency. Their preference is to bill you in your home currency. What they do not tell you is that they apply an exchange rate that is often 3-6 percent higher that what one would pay through a credit card. Princess does this on a regular basis, even if you request otherwise. You have to check back with the pursers office to make sure that they honour you request. Otherwise, you do not notice until you get home and it is then too late to do anything about it.

[ChiCruiseGuy]

Paying in local USD for all of your trip costs is one of the best benefits to cruising - no worries about having to convert currency (commissions) or suffer the never ending bad exchange rates like USD to Euro of late when having to pay for hotel rooms and such.

[macd2]

If you want to do this seriously, buy international bonds or bond funds. Then you're earning interest on top of gains/losses due to currency fluctuations. Also, you don't have to worry about fees charged for currency exchange or safely storing the physical currency.