For many people, the only time they’ll think about foreign exchange (FX) rates is when they go on holiday, and are concerned about the purchasing power of the euros or dollars they’ll get for their sterling.
However, I know that unlike their domestic based citizens, UK expats have their finger on the pulse when it comes to the current exchange rate between the currency being spent on a day-to-day basis, such as Hong Kong dollars (HKD), and UK sterling.
As an expat, it’s crucial to manage your foreign exchange transactions effectively
By definition, as an expat, you’re likely to have financial interests in two countries.
From the conversations I’ve had with clients, and my own experience of living and working in Hong Kong, it’s clear that different currencies can easily add layers of uncertainty and complexity into expats’ lives.
For example, your retirement plans may involve moving back to the UK at some stage, and you may well have pension funds denominated in both sterling and HKD. Alternatively, you may have a specific date in mind when you’re planning to repatriate, perhaps at the end of a fixed-term contract. In these circumstances, the HKD to sterling exchange rate will matter a lot.
You may also have a financial interest in other currencies. For example, perhaps you’ve bought a holiday property in Europe that you have a mortgage on, or you have business interests elsewhere outside the UK.
Furthermore, you may be moving substantial amounts of your money between countries, so you are only too well aware of the perils of currency risk.
Because of the importance of FX, and because it can be financially important to ensure you’re getting the best exchange rate possible, here are four simple tips to help you manage your FX dealings.
1. Use a currency exchange specialist
Because holidaymakers are usually changing relatively small sums of money, they’ll be happy to purchase any currency they need through a bank, post office, or even, God forbid, at the desk in the airport departure lounge!
This is not the case if you’re an expat, especially if you are potentially dealing with large sums of money that you’ll be transferring electronically.
Because of this, we would recommend you consider using an exchange specialist rather than try to do the job through your bank. There are many advantages to doing this as, among other things, they can:
- Negotiate the most favourable possible exchange rates for you
- Give you access to a variety of exchange strategies, such as fixed or advance exchange rates
- Help manage the sale of assets between financial jurisdictions.
We have contacts with several exchange specialists who we have recommend to our clients in the past.
2. Plan ahead as much as possible
When it comes to your currency transactions, having some awareness of your future exchange plans and needs can be highly advantageous.
Effectively, you should be looking to factor currency exchange into your plans in the same way that you would your investment holdings. Furthermore, you should also be looking to reduce your exchange management costs as much as you can.
Exchange rates and associated charges can be crucial, and even a minor differential can result in a difference of thousands of pounds on a major transaction you may have to carry out.
You wouldn’t accept that on an investment transaction, so why accept it on FX?
3. Don’t try to time the market
I’ve often encountered examples of anchoring bias, not only when someone is trying to make an investment transaction, but also in relation to currency exchange.
Anchoring causes us to rely too heavily on the first piece of information we are given about a particular subject or transaction. When it comes to FX, it can mean someone hearing about a favourable exchange rate, and holding on until that rate is available again.
For example, you might have seen the recent GBP weakness that meant converting just HK$ 9.4 for ÂŁ1. Now it will cost over HK$ 10 HKD to get that same ÂŁ1. Anchoring to the more favourable rate however could mean waiting a long time until things return to where you want them to be even though HK$10 is more than acceptable.
Additionally, it’s hard enough timing investments when you just have one variable, which is the value of a share.
When it comes to currency exchange you have two variables, being the two currencies in question, with all the macro-economic factors that can affect a nation’s economy and, as a result, the value of their currency. So, it’s rarely worth trying to time the market where FX is concerned.
4. Carefully manage your long-term currency holdings
While encouraging you to plan ahead and factor FX into your strategy as an expat, I would caution you against planning too far into the future. You could end up weighing yourself down with excessive amounts of one particular currency.
For example, if you know you’re eventually going to be moving to Australia, you may be tempted to start building a substantial Australian dollar position and holdings.
Not only could this put you at the mercy of future exchange rate fluctuation, but also may well restrict your investment opportunities compared to other markets.
You may be better advised to work through a currency specialist and consider using long-term forward contracts, which can help you hedge your exposure.
Get in touch
If you would like us to introduce you to a foreign exchange specialist, then please get in touch.
Likewise, if you would like to talk about your own financial planning arrangements, we’re here to help.
You can contact us by email or, if you prefer to speak to us, you can reach us in the UK on +44 (0) 208 0044900 or in Hong Kong on +852 39039004.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
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