_jon_

We have some cash in the bank, about 5K.

I am tempted to take advantage of the good exchange rates at the moment and convert this to dollars.

Is there a service that will convert the money for me and hold the dollars in an account?

I could change for cash if needed but would prefer to have the money in an account of some sort.

tonrob

Are you in the UK? Converting to $$$ doesn't have to mean "send money to America". UK banks can provide you with a US$ currency account in the UK (albeit usually with maintenance charges).

dunroving

- and often crappy (or no) interest rate (though that's almost par for any type of account these days). I have a Barclays $$ account here in the UK and it has always been a no interest account. It still has half the money I brought back in 2006 (the other half went on my UK house deposit). I have been waiting for the exchange rate to get better but I don't think that will ever happen (plus I'm trying to get back and just know if I converted to £, when I go back the dollar would be down to $1 to the £!)

agentred

Why not take out a forward contract at xe.com

It's an agreement that says "In one year I will have the option to exchange £5k into $s at today's exchange rate (no matter what the exchange rate is in one years time)"

Then you put the £5k in a high interest account for a year, and if the pound is weaker in a years time then bingo you've made a tidy profit. And if the pound is stronger, you can just walk away from the contract.

The last point depends on whether you buy an option or a forward, call xe on the phone and they can explain everything to you.

Dan725

Not so sure about that. As you say, if you have a clause where you can, the exchange rate you will gain will be much less than it could otherwise be. no such thing as a free lunch.

To the OP - 1:1.65 really isn't that great at the minute, considering it was 1:2 plus not a year ago. I'd not consider it at the minute to be honest.

_jon_

Chances of a 1:2 for next few years are slim to none.

If, as it looks, the UK has a blip rise in GDP then a second slide, the £ will devalue again as other economies may fare better.

Hence the choice to take advantage of 1.65 fro 5K of a 20K 'pot of gold' for our relocation.

agentred

That... doesn't make any sense to me, could you please reword it? I agree about the exchange rate being better a few years ago but the decision lies with the OP.

_jon_ you should really try the xe.com service. I checked the setup and it actually works like so:

1. You call them, they quote you today's rate (lets call it rate A)
2. You agree to this conversion for £5000
3. You put down a 10% deposit (so £500)
4. In one years time, you send them the other £4500 and they convert the total £5000 to dollars at the previously agreed rate A.

Since you think the rate today (rate A) will be better than the rate in one years time, and you don't want to have cash lying around, this would be a good solution for you. You can keep the £4500 where it is right now, earning interest, and in one years time you can convert it with no hassle.

Alternatively, I THINK you can send yourself a dollar draft? That would be a little more complicated, but you would basically pay XE £5000 today and they would send you a cheque for $7500 (or whatever the conversion is).

Now you can keep this cheque until you move to America, but don't lose it! Again, it's just an idea, you can look up the details if you're interested.

Finally, I think, you can open a dollar denominated bank account with an international bank like HSBC or the London branch of an American bank like Wachovia, and they would do the conversion and keep the dollars in the account for you.

Hope this helps,

Dan725

What I mean is - when you arrange a forward contact, you agree to and fix a set exchange rate for a future date. This rate is lower than the rate you could get on the day, i.e. the spot rate. The longer out you fix the forward, the more reduced rate you will get. The reason for this is that the longer it goes on for, the more risk the company exposes themselves too. It follows that "An option to walk away" as you put it, will reduce the rate even further, as its even more risk for them. On a rate of 1.65, which is historically distinctly average, all of this will only put the OP odds on of being upside down at the end of the day, IMO.

Dan725

Slim to none? Don't agree with that.....all this stimulus spending in the US will have to come home to roost at some point....when the dollar printing presses start working overtime, I can see it jumping even higher. if you think the GBP is having a comeback, to be followed by a slide, the same could be said for the dollar, except the slide is 100 times as long....

Still - if you are personally happy with 1.65 on the pound that's great.

agentred

I understand what you mean theoretically but I disagree in practice. The short version is:

Call xe.com and let them quote you a rate, maybe it's 1.62 instead of 1.65. If the OP thinks the exchange rate in a years time will be more like 1.54, he's still getting a good deal. It's free to call and ask, so he has nothing to lose!

Long version is:

I'm not sure I agree with this statement:
"This rate is lower than the rate you could get on the day, i.e. the spot rate. The longer out you fix the forward, the more reduced rate you will get."

The one year exchange rate depends on the interest rate in each country bringing the two currencies to parity. I could run some back-of-the-napkin math but I'm pretty sure the relationship is not simply. "longer out = more reduced rate". I may be wrong since I haven't studied this stuff in a while, but I'd be curious to hear everyone's take.

Dan725

Have you actually done one of these forward contracts? I'm speaking from experience here, as I did a forward when I relocated to the US. I had a forward contract set out for about 6-8 months. The spot rate of the day was something like 1.84; I got about 1.80/1.81. I talked with them about it - they told me the longer out, the less the rate for the reasons I've given. With mine there was no "get out clause"; I should imagine there would have been a hefty penalty for doing so.....I guess it would depend on the rate of the day as to how much of a penalty it would have been, as it would depend if they could buy it back at a profit, or a loss.

For 5000 dollars, against a historically average rate of 1.65, it's just not worth the bother.

agentred

I haven't done a forward contract through xe, but your forward rate differential of $0.03 seems about right. Xe might be tighter or worse, but until the OP calls them up and asks we're not gonna know.

Your assumption that xe is going to charge a high rate is a little flawed in my opinion. I think a company like xe is large enough to hedge its contracts. So the OP might think 1.65 is a great rate for dollars and want to lock in dollars, while an American might think it's a great rate for pounds so they each enter in to a contract and cancel out the risk for xe. It's probably not as simple as that in real life, but this is a large part of how xe makes its money (taking the spread premium on each contract for basically zero risk).