Should I buy currency now in case the US dollar falls before my big trip?

June 30, 2011 11:52 AM

Should I buy some Turkish currency now, ahead of my two-week September trip to Istanbul, to hedge against the (hopefully remote) possibility that U.S. politicians will not raise the debt ceiling by August? Or euros? Are there other steps I should take now to protect myself, just in case?

I'm not freakishly worried, but it seems like there's at least a remote possibility that political deadlock could prevent Congress from acting. This trip is already going to be hard on my budget, and if U.S. currency drops significantly it will be even tougher. I'd welcome any advice on what reasonable steps I can take just in case.

posted by croutonsupafreak to Travel & Transportation (11 answers total)

It's a remote possibility, and unless you're talking a huge amount of money, it seems like the fuss and cost wouldn't be worth it. You'd generally pay a huge fee to change money here (as oppposed to just getting it at an ATM there), which would more than make up the small expected savings. For example, let's say you think there's a 1 percent chance that the exchange rate will drop by 20 percent, and you are thinking of changing $1000. The expected savings is (20 percent X 1 percent X $1000)=$2. I'd guess that the extra fees would be many times higher than that $2.
posted by Mr.Know-it-some at 12:07 PM on June 30, 2011

Last time I traveled internationally was before the era of ubiquitous ATMs, but shouldn't I expect notable bank fees for international transactions that I should also consider?

Is that "expected savings" formula some sort of universally understood use of statistics, or did you make it up?
posted by croutonsupafreak at 12:10 PM on June 30, 2011

That formula is simple math, it's not made up.

I don't think you need to worry about hedging your currency risk. And, in any event, the dollar won't disappear, ad will remain more liquid than lira.
posted by dfriedman at 12:17 PM on June 30, 2011

You'd generally pay a huge fee to change money here (as oppposed to just getting it at an ATM there), which would more than make up the small expected savings.

This isn't necessarily true; last time I travelled internationally (within the past year) I was able to request a plain withdrawal from my checking account in another currency for no fee, and the exchange rate wasn't terrible at all. (This was Bank of America, by the way.) I was also able to deposit about $150 of leftover Argentine pesos back into my checking account for no fee, which was a pretty nice way to avoid the crazy fees charged by currency shops in the airport.

In contrast, my BoA debit card racked up a $5 "foreign transaction" fee every time I used it to withdraw money abroad; I was in a country that didn't have ATMs from a bank that had an agreement with BoA. After returning I did some searching around and managed to find one bank that had no foreign transaction fees (TD Bank) but I was surprised that compared to 5-10 years ago, it's no longer automatically the best option to just use a debit card and withdraw from an ATM--lots and lots of banks have loaded fees on for that service. Same issue with credit cards, as well.

I don't have a strong opinion about whether it's a good idea to pull out a chunk of cash in Turkish currency to hedge against a fall in the dollar (although I'd put the chances of failing to raise the debt ceiling above 1%), but I suspect you stand to lose more money by using an ATM and/or credit card over there in terms of fees than in terms of a weak dollar. I wouldn't be surprised if from that standpoint alone it made sense to bring a non-trivial amount of cash over with you rather than rely on plastic. Or at least look into opening another bank account with a bank that won't charge you any fees for using your card internationally.
posted by iminurmefi at 12:38 PM on June 30, 2011

I wouldn't put too much stock in expected savings -- playing with probabilities like that only really makes sense if you intend to do this a lot and you're trying to determine if it makes sense as a long term financial strategy. You're not trying to find the lowest cost solution, but the lowest risk -- or at least the lowest risk solution that's available at an acceptable cost.
posted by jacquilynne at 12:53 PM on June 30, 2011

I was in Turkey in late April for a couple of weeks. Istanbul is lovely. Lots of places you might go will accept Euros, but the rate is always better if you pay in Lira. Currency exchange on USD or Euros in Old Istanbul is surprisingly reasonable. I'd bring a wad of US and exchange there, or use ATM's there to make occasional withdrawals. If you don't already have a chip card, see if you can get one. Ms. Show and I found it quite safe.

Currency markets are notoriously unpredictable. I wouldn't anticipate being able to make significant savings by making a transaction one way or another. You're unlikely to guess right in a way that will save you much money. More important is saving between now and the trip, paying down debt, etc.
posted by thenormshow at 12:58 PM on June 30, 2011

So you pay a transaction fee when you withdraw cash abroad - in a two week period how often are you realistically going to withdraw cash? Once or twice? You're over thinking this. Unless you withdraw a couple of days worth of cash every other day the transaction fee shouldn't be a huge worry.
posted by koahiatamadl at 1:42 PM on June 30, 2011

iminurmefi - Thanks for that information about ATM fees and BOA's good deal. I should have mentioned that my information was based on personal experience of maybe a dozen international trips, but none in the last 4 years, so fees may have changed.

This seems to be a decent guide, but croutonsupafreak should check a guidebook to Turkey and check the fine print of his or her bank and credit card policies.

(And yes, I just made up that formula, but it's just an example of a standard economic concept. For example, if there's a 10 percent chance of winning a prize of $50, the "expected value" is 10 percent of $50, or $5. If you're in a group of 10 people that has a 5 percent chance of owing $100, and you all decide to draw straws to see who pays if the group owes money, then you are, on an expected value basis, out $100 X 5 percent / 10 people = 50 cents.)
posted by Mr.Know-it-some at 4:07 PM on June 30, 2011

I just got back from two weeks in Europe and, as kahiatamadl says, I used the ATM maybe, I dunno, 4-5 times? I spent less on foreign transaction fees than I did on prosecco.

I've never heard of the deal that iminurmefi mentions. It might be a carefully hidden secret, or it might be something BOA does that other banks don't.
posted by Sara C. at 5:15 PM on June 30, 2011

As others have said you probably just want to ATM it, but check with your bank. One of mine (a local bank) will do foreign ATM withdrawals at market rate and no fee. My other one (national bank) will charge fees that makes the money changers fees look reasonable.
posted by Ookseer at 9:19 PM on June 30, 2011

Also, don't travel with huge wads of USD to save cash - I love Turkey, but it's not crime-free. I tend to treat ATM fees as little insurance premiums against losing a serious stack of cash to a decent pickpocket.
posted by cromagnon at 5:15 AM on July 1, 2011