taking advantage of EUR/USD rate

[themagicman]

I have already booked a trip to Paris and Rome for this September. I am planning on spending about $3,000 USD while I am over there (The flight and hotels are already taken care of) I have noticed that the EUR/USD conversion rate has significantly dropped recently. It has been around 1.4 for a while when I had checked and recently it has dropped to about to almost a 1:1 ratio.

I wanted to see if anyone knew of a relatively easy and cheap why to go ahead and lock in this exchange rate now? I was planning on using my sapphire preferred card with ) forex fees while over there but would be happy using cash if I could go ahead and lock in the low exchange rate easily and cheaply. Any ideas?

[kvaruni]

Most banks will allow you to order foreign currency, and it is fairly cheap to do so. I have done it through TD and their exchange rate was quite good. That being said, is it really useful to lock in the current rate? Since it is cash you could forget it, you can lose it, ... There is also no guarantee that the exchange rate won't drop further. The reason of the drop is that the US economy is strong, QE has kicked in throughout Eurozone and the economy in the Eurozone is still struggling. I don't see that changing anytime soon, and it all comes down to market timing which you are best to avoid.

If you have the $3,000 and are happy with current exchange rates, then sure, go buy the EUR. One stress free trip coming up :).
I usually just get a smaller amount out in cash. It is handy to have the cash, quite a few places in France and Italy are so small they don't accept cards, and it allows me to overbudget and underspend. While I might set aside a budget of $3,000, I rarely end up spending more than $2,000. If that is you, then it is a clear sign you shouldn't exchange the full $3,000 right now.

[acepedro45]

There is an easy and cheap way to do this without horsing around with currency derivatives.

Step 1. Visit your bank and ask them to give you EUR3,000 today. They probably won't have the cash on hand, but in a few days you can probably return and pick up your Euros. At most banks it's about a $5 flat fee for the transaction into a foreign currency. 

Step 2. Stick the thick wad of Euros in a shoe box for the next 6 months.

Step 3. Carry it Over There and spend it. At the end of your trip if you have anything left over you can trade back into US dollars for the same flat fee at most banks.

Downside: Holding that much cash is slightly risky. If there was a housefire on this side of the Pond or you were robbed/careless with your baggage in Europe you might regret this course of action. But if you don't mind that risk, you should be good to go.

You could potentially open a euro denominated bank account or use paypal or something to store the money in the interim, but that may be more of a painful administrative chore than is warranted by the very small risk of holding the cash. Your choice.

[boarder42]

also word is the Fed could raise rates in the states.  This should further the drops of the Euro against the dollar.  so you could exchange now and have 3k locked up in not really liquid capital for 6 months or just wait and have a better rate.

[acepedro45]

also word is the Fed could raise rates in the states.  This should further the drops of the Euro against the dollar.  so you could exchange now and have 3k locked up in not really liquid capital for 6 months or just wait and have a better rate.

Boarder42 is entering the realm of trying to time the market on the future direction of currency exchange rates. Many very smart people have lost a lot of money, ended up looking foolish, or both at the same time attempting this.

To the OP: Exchange rates could improve in the next 6 months. They could get worse, too. If you are comfortable with today's prices, you should definitely consider it. You should recognize that you're not "getting one over" on anyone, but just locking up certainty of cost in USD.

[Villanelle]

This is no different than market timing.  Don't do it.  Would you feel frustrated if, in 5 months it is 1.25Eu to 1USD, and you locked yourself in at a much higher rate? If so, don't do anything now.

Also, be wary about buying foreign currency from a US bank. Generally, you get a horrific rate.  Every time I've looked, I have been much better off just getting cash from a local ATM.  (I have a card the refunds out of network fees, so it costs nothing.)  Generally, that is a better rate than airport exchange counters or US banks.

In addition to the market-timing aspect, the other thing wrong with your plan is that you then have to carry 3000Eu around with you.  That's a terrible idea while you are traveling. 

[hodedofome]

You could admit that you don't know what's going to happen, but convert half now and half when you go. That would split the gains or losses by half.

[johnny847]

This is no different than market timing.  Don't do it.

I concur. This is merely market timing of a different market, the currency market.

[Villanelle]

I didn't mention this in my last post, but if you can find a bank that gives you a good rate and doesn't charge fees (which I doubt), you could consider dollar cost averaging.  Get $500 per month.

That said, you'd still be in a situation where you are carrying $3000 (or 3000 Eur) on you at the beginning of your travels, which still seems like an awful plan. 

[forummm]

Why not just wait until you go to get the euros? The rates are widely projected to go below 1:1 in the future. It's unlikely they will get significantly worse from a USD-owning perspective in 2015. And I personally don't want to have $3k+ in cash sitting around in my house, let alone carrying it around with me on a trip. Why not just use credit cards, and ATMs once you get there? You can even bring some dollars in cash and often get a good rate in shops in tourist areas.