Currency Exchange

Both large and small

If you are planning on a small trip - 2 weeks, perhaps - the ATM and your credit cards will serve you well. You really don't need to get excited about currency exchange. Here are a few general tips:

  • You don't need to land with Euros in your pocket nor do you need to get them right away ... with a few exceptions. If your transportation requires cash - some taxis or local busses, then you should get some. If you will settle at about 12:01PM or so, the banks will be closed for an hour so do something that takes your credit card or go find an ATM.
  • If you are planning on returning within the next few years, keep a few euros when you leave ... they don't go bad.
  • If you are making big purchases in the future or if you are traveling for a long time on a very limited budget, consider locking in your exchange rate now. If the dollar falls, you will still be able to afford to go; if it doesn't, you'll still have a great time and can afford to spend more on gifts.

So let's talk about taking the risk out of currency exchange.

The value of the Dollar changes every day ... every second, actually. There are people who actually earn a living by buying and selling currencies - money. It's not like stock, where the value of the stock can go up because the company is doing well. When the Euro goes up, it is going up with respect to the Dollar, which means the Dollar is going down. Economists would term this a zero sum game - for every gain, there is a loss ... in this case, for every gain, there is a loss and a commission. The people doing the trading set up two different prices - one if they are buying your dollar; another (lower) if they are buying back your Euro - they make their money on the difference between the two. Some people are brave enough to predict which way the market will move and buy a currency, expecting to sell the currency are a higher rate sometime in the future. Many of those traders now sell hot dogs ... it's a very risky way to make money.

So if you are risk adverse, how do you avoid the flucuation in the value of a Dollar? You don't ... but you can minimize its effect.

Expenses in Euros: Many of your travel expenses will be quoted in Euros, not Dollars ... some car rentals, room rentals, tickets, etc. If you make a reservation for a room in Paris at 100 Euro per night, that will cost you $118 if you were travelling in May of 2004 or $138 if you went in August of 2006. For thr trip, the difference is only $100. For longer periods, the difference could be more.

You have two choices: Accept the flucuation risk or lock in now. If you are OK with the risk, you can stop here. For short trips and daily expenses, not much harm will be done. For longer trips and expenses that could run a few thousand dollars - cars, rooms, tickets, etc - there is a way to lock in todays rate for tomorrows trip. Companies, like CurrencyOnline, exchange millions of dollars a day. They will set up an account for you, accept your dollars and hold the Euros for your trip. Click the link on the right to learn more.

Large Purchases: If you are ready to buy your retirement villa or mediteranian yacht, and you think (or would be badly hurt if) the dollar will fall, lock-in now. I'll be posting a separate article on how to do it, but the easy answer is call HiFx. I have used Hifx personally for this - they make it easy, they are friendly, and their rates are very competitive. In a single day, the conversion rate could fluctuate by more dollars than their commission. They will guide you through the process and act as your transfer agent, holding your Euros until you know exactly where and when to sent it.

So don't worry about the value of the dollar. It will be what it will be. Make your plans, decide about how and where and when you will convert to Euros ... and have a great time.

Bonne Chance


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