Question about buying foreign currency

[garybeck]

I'm watching the dollar take a nose dive, against other currencies and gold.

I don't have a lot of money but I'd like to keep what I have. Another issue is that my son is going to college in Canada starting in the fall. It seems to me that every time the dollar drops against the Canadian dollar, I'm paying more for college.

So I'm thinking about buying some canadian dollars. Does it sound like a good idea? If I could use them to pay for some of the college, I would probably end up paying less, if I do the exchange now and the dollar keeps dropping.

Even if I don't use them for paying for college, it seems like it would be a decent investment. I heard one economist on the radio recently saying that while the US dollar is dumping, other currencies like the Euro and the Canadian dollar are poised to do well against it.

Of course I wouldn't exchange every penny I have in the bank, just a reasonable amount....

So my questions to all you experts...

1) is this dumb?

2) what's the best way to do it? go to my bank where the money is, and tell them I want to make a withdrawal and exchange at the same time? then hold on to the canadian cash in a safety deposit box? Or is there a way to do the exchange on paper and just keep it all still in the bank?

thanks

[TechBear_Seattle]

1. An individual investor can't save money in the currency market

The margins are far too low, and don't forget to consider the service fees in "translating" from one currency to another.

If you are looking for short-term investments, like a savings account, forget it: there are no short term fixes. Long term, you might consider a mutual fund that specializes in foreign investments: stocks, bonds, even the international money market. Another possibility is to buy land or other real property. Unless you have lots of money shelter, though, a mutual fund would probably be your best bet.

Disclaimer I am not a financial planner and I am not legally qualified to give financial advice. Consult with a licensed professional. :hi:

[garybeck]

5. well, even with the fees, consider that

not long ago the exchange rate with Canada was something like .7. I just went across the border and bought a guitar a few weeks ago and found it was almost .9. I can see a day coming when the canadian dollar is worth more than the US dollar. I would think that even with the exchange fees, it would be worth it.

[Warpy]

20. Well, not quite

Setting up a savings account in a Canadian bank in Candian dollars might be a great hedge against the continued drop in the dollar against the loonie. Having a son in college there would make the process far easier.

That's what I'd do in the same situation.

However, exchanging dollars for loonies and keeping them around the house or even in a safe deposit box at the bank seems a bit silly. Just set up a savings account where it will be used and hope the buck doesn't get strong enough to make it a bad idea. If that starts to happen, though, it's easy to close out the account.

[medeak]

2. boy can I commiserate

just sent off big check to son attending college in England...immediately worth half of US dollar. Sickens me

[LZelig]

3. FXE (EURO CURRENCY TRUST)

I'm no expert, but there is this: FXE (EURO CURRENCY TRUST).
Trades like stock.

[rogerashton]

4. Buy securities

Generally just buying currency is not a wonderful idea unless you are planning to spend it soon. There are mutual funds that invest in other countries: investing in a fund of this kind could get you the benefits of appreciation of the C$. However, they actually pay in US dollars (anyway the one I own does) and that solves only half your problem. Also, they can fluctuate, and that's not what you want either. You probably could buy a bond mutual fund (a fund that invests depositors' money in government bonds) invested in Canadian government bonds and denominated in $C. Bond funds don't fluctuate (much -- depending on the term of the bonds) and tend to be pretty liquid. But it could be a complicated transaction and you might need the help of a financial professional.

Two other things.

1) Canada's economy is natural-resource based and many pros think the $C will not go much higher as resource prices are already quite high. (For myself, I'm holding my Canadian investment, though).

2) If you have assets enough for a year of college expenses or more, and they are in a bank account, you do need some help from a financial pro.

[Extend a Hand]

6. the only US bank I know of

where you can open a checking account in a foreign currency is
http://www.everbank.com/main.asp?affid=eb

[garybeck]

7. thanks. interesting.

[puerco-bellies]

8. Commodities..

You can trade the declining dollar by either "shorting" the dollar, or going long currencies like the Canadian Dollar, the Japanese Yen, The Euro currency. I would recommend Options on futures contracts, where you would not be exposed to the possibly of margin calls. Buy "close to the money positions.
On the Canadian Dollar:
The Canadian Dollar opened at 0.8545 and it closed at 0.8634. that movement was 89 points. With a futures contract your position would have picked up $890 in value. With an options contract you would have picked up about 60% percent of that, but again you are not exposed to margin calls. You could pick up an "in the money" 0.8600 strike price call for $950 plus commission.

Good luck,
P-B

[bemildred]

9. 1.) No.

2.) It was easy to drive up to Canada and open a savings account, last time I checked, and all you have to do is write a check and pay the conversion "fee", which is not much. There are also places online, I believe, where you can open looney denominated accounts. You'd need information for a wire transfer or the like for that.

Canadian targeted mutual funds are profitable of late too, but there you have the risks and rewards of owning equities.

[screembloodymurder]

15. I was told a US citizen cannot have a bank account in Canada.

I tried to do this two weeks ago.

[cliss]

10. GB, have you looked into converting

some of your 401(k) funds into foreign currency? Now I know for sure, if you have a pension that's got money invested in the stock market, you can sell off some (or all) and put it into a money market account.

Of course, you wouldn't necessarily want to do that, because you don't get much interest earnings, but it may be safer than the stock market (which I have 0 faith in). Now, I've read that you can switch from a money market to a foreign currency money market account. If the currency goes up (which we know it will), then your account goes up in value.

You might want to check with Charles Schwab about this. You can always call and talk to them.

I personally think we need to get out of the US dollar, ASAP.

[garybeck]

11. i don't have a 401K

i'm a lowlife contractor, with no benefits. i'm mainly asking about the situation with paying for college in Canada. It seems like every time the dollar falls against the canadian, I'm paying more for college, so I was thinking, convert the bucks now.

[Warpy]

12. The Canadian buck may be in a little trouble, too

and the Euro eventually will be, although neither is as vulnerable to achieving third world junk currency status as the almighty dollar is.

The reason? OFFSHORING. Lacking a base of decently employed working citizens, governments are going to have to go deeper into debt to fund even ordinary, day to day operations, even if the fascists manage to end social programs in socialist countries.

You'd think the insane dogma of free trade would have run its course by now, wouldn't you?

[screembloodymurder]

16. Canada has been balancing their budget for five years.

Why would their currency be in trouble?

[Bouvet_Island]

13. Can't you just go to canada,

and open an account in a canadian bank?

I might be safer than US banks if the shit really hits the fan. I would take action fast no matter.

[German-Lefty]

14. CAD bonds

what's the best way to do it? go to my bank where the money is, and tell them I want to make a withdrawal and exchange at the same time? then hold on to the canadian cash in a safety deposit box? Or is there a way to do the exchange on paper and just keep it all still in the bank?
"Hoarding" cash is dumb. An easy thing you can do which gives to market the most information possible, is to buy a collection of Canadian Government bonds which expire at the beginning of each semester or whenever you anticipate needing the money. You can check out the C$ yield curve here:
http://www.bankofcanada.ca/en/rates/yield_curve.html
So let's say for example for your son's senior year in 3 years you can anticipate him needing 10000CAD, and the yield for 3 year zero interest bonds is 3.5%. Then you can buy bonds which will provide that 10000 and they'll cost you (1.035)^-3 *10000CAD = 9019.42CAD. So you save ~10% over putting cash in a safety deposit box.

Now there are tons of other ways (forex,futures,options,unit funds) you can do the same thing, but I'm pretty sure any transaction where you pay in USD now for locked in amount of CAD later you're going to get about the same deal. The only thing that can change will be the transaction costs. Some of the more advanced ways of doing this like Forex or Futures trading cost you too much.

Ask yourself the following:
1) Do you have all the money now, or would you like to lock in the exchange rate of USD you know you'll have in the future? You can enter forward trading agreements, where you agree to exchange X USD for Y CAD at time T.

2) Do you want to play the private sector? You can probably get a higher rate of return if you put the money in the Canadian private sector, for example you could buy corporate bonds with higher yields that also pay out in CAD.

3) Do you want to play the exchange rate? Are you very sure the USD is going down relative to CAD? You can bet hard against the USD and wind up loosing money if you're wrong, or you could bet light against the USD and buy some options to protect you from huge drops in the dollar.

[Name removed]

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[trekbiker]

17. try foriegn currency CD's...

thru Everbank. and FDIC insured!

http://www.everbank.com/main.asp?affid=eb&IDPage=pro_wc_disc&referID=11639

[many a good man]

19. Don't gamble with forex

Buy property in Edmonton instead and you'll be able to retire by the time your son gets out of grad school.