The Significance of the Exchange Rate on a Travel Budget

How can the currency exchange rate affect my vacation travel plans?

Currency exchange rates maintain the equilibrium in a country’s economy. Inflation, depreciation, imports and exports as well as other global financial factors, can cause fluctuations in the currency exchange market.

These fluctuations can be slight or they can be sharp and sudden, especially if a country’s currency is just emerging in the global market, or if the stability of the country’s economy is in question.

Changes in exchange rates have a definite impact on a vacation travel budget, so rates are a prime consideration when planning a holiday in another country.

Most vacations are planned well in advance especially holidays in another country, so it’s important to do a little research on the value of your host country’s currency. In order to maximize the value of your vacation dollars a currency exchange system should be implemented when you begin planning your trip.

When should I exchange my vacation money?

Some travelers who plan on visiting a country or a group of countries in the European Union don’t exchange money until they arrive at their destination because the Euro is used in all of those countries and they believe its value is relatively stable. Given today’s economic conditions that assumption might wind up being an expensive one.

Exchanging your entire travel budget at the last minute reduces your exchange options. Airport merchants and banks charge a fee to make the exchange and that fee impacts your budget. Let’s say you arrive in Rome with a $1000 and decide to exchange it for Euros at Leonardo da Vinci airport.

The Dollar/Euro exchange pair has been moving over the last few days and now there is a 1200 point difference from your estimated rate of exchange. That change costs you an extra $120 plus the exchange fee.

What is the best strategy to use when exchanging money?

The best way to exchange money is to average your currency exchanges. Exchange small amounts of money at different times over the planning process. By averaging your exchanges before the trip you know how much money you’ll have to spend.

If you use a currency trader to make your exchanges you usually get the best rate of exchange. Banks charge a fee for each exchange and may only post one rate a day, which means the rate is not a real time rate. Credit cards charge a rate that has a built-in profit and they add a surcharge on all vacation purchases.

Averaging is especially important on longer trips when more money is needed. Exchanging money in foreign hotels or with other currency merchants while on the trip can also put a hole in your budget.

Other travel tips

Some countries have a limit on the amount of cash a visitor may bring with them, so check those restrictions before leaving home. Always carry cash in a money belt or hidden pocket which is secure and out of sight and use hotel safes and other precautions when your arrive at your destination.

ForexTraders.com study and discuss the dynamics of the currency exchange market. For more information about the forex trading, currency exchange strategies and the forex price action, please visit our website.