A dollar in the United States isn’t the same as a dollar, known as a yen, in Japan. Nor is it the same as the euro in France or the looney in Canada. Sometimes a dollar can be worth several other “dollars” in a foreign currency, and sometimes it can take more than a dollar to buy foreign currency. For example, right now, it costs about $1.12 to buy one euro. In the past, it cost nearly $2 to buy a euro and this difference is likely to change again in the future. This floating difference in currencies is known as the exchange rate.
If you are visiting or living in a foreign country, you may not think about the exchange rate much. You are operating wholly in the foreign currency and calculating worth based on that. But you should be checking the exchange rate regularly. Here are a few reasons why:
To Get Money Transferred
There are a lot of reasons you might need to get a friend or family member to transfer money to you while you’re abroad. You might lose your wallet or have it stolen. Your camera might break, and you might need more money to replace it so you don’t lose all the great photos. Or you may be abroad to work and you run into a problem getting your paycheck, so you need a little loan to float you.
You won’t know how much people need to send you if you don’t know what the current exchange rate is. They will send the money in dollars, but it will show up in whatever currency you need. Therefore, if the dollar is weaker than your current currency, you will end up with less than you need. You must know the current exchange rate so you can ask for the correct amount.
For Emergency Planning
How do you know if you have enough money for your needs if you aren’t watching the exchange rate closely? Even if you have a chunk of money that you never spend or add to, the amount you have will change over time based on the exchange rate. You can’t be sure you have enough money for your daily expenses and any emergencies if you don’t know how much your savings are worth.
Keep a close eye on the exchange rate to know if your savings are dipping low. Or watch the rate to make the exchange at the optimal time, getting the most foreign currency you can from your dollars.
A lot of people make money by buying and selling currency when the time is right. You can do the same on a smaller level by exchanging money at the right times while you are living abroad. You get paid in the foreign currency, and you can exchange it when the time is right and deposit it in your savings account back home.
If you are interested in more serious investing while you are living abroad, you need to know the exchange rate for not only buying and selling currency but also for buying stocks on the foreign market with your U.S. money or vice versa. Even if you are living abroad for only a short amount of time, you should be investing. You will build a nest egg for yourself for retirement or in the case of emergency.
Know Your Options
Whatever situation arises, it is important that you know your options for getting more money when you need it. Getting a money transfer is ideal since it allows you to get the money fast just about anywhere you are. You just need to know the locations for your nearest wire transfer station.
Other options include having friends or family sending you money through PayPal or another person-to-person money service. Just know that there will be a delay with getting the money into your bank account and that you’ll have to pay a fee. You can also investigate short-term loans in the country where you are living. For traveling, make sure you have enough on your credit cards or store some traveler’s checks somewhere safe.
The exchange rate may not seem like a big deal, but it can make a huge difference to your finances. Make sure you are watching it closely while you are abroad.