Keeping Your Foreign Expenses In Dollars Can Give You A Hedge Against Rupee Depreciation

In just two years, the rupee has depreciated almost 11 per cent against the dollar, which is often considered the reserve currency of the world.

Let’s assume, you want to convert your money into pound sterling or euro. You will have to first convert your rupee into dollar, and then convert it into any other currency. In 2022, almost all stocks, bonds and every other currency fell against the dollar. Incidentally, the dollar has been one of the best-performing assets this year.

So, if you plan to travel abroad, send your child for education abroad, or trade (buy goods) from abroad, then, keeping some portion of your expenses in dollars can prove to be a smart money move. 

Says Mayank Goyal, founder and CEO, MoneyHOP: “It is advisable to keep a significant amount of your funds in dollars. This is because, as we have seen in the last two years, there has been a steady depreciation of the rupee against the dollar, by as much as 11 per cent. This trend is likely to continue in the near future, which means that the purchasing power of the person in question would be greatly diminished if they kept their money in rupees. Therefore, it makes sense to keep a sizable amount of their money in dollars, in order to be able to cover the expenses and maintain a good standard of living.”

Best Ways To Convert Rupee To Other Currencies

There are various online platforms, besides banks, which provide forex. That said, the rates differ widely.

Says Divam Sharma, co-founder at Green Portfolio, a Securities and Exchange Board of India (Sebi) registered investment advisory firm: “You can keep forex in cash, take a forex card; and you can visit your bank or offline dealer for currency conversion. A bank can even charge you 30-40 basis points (bps) above the card rate, and we don’t have an understanding about the card and live rate, and we just adhere to what they charge us.”

Things To Look Out For

There are various hidden charges in forex conversion. That’s why one should always compare different platforms and bank rates, and then negotiate for the best available prices.

Says Sharma: “You should not be blindly accepting rates from a bank which might have a lot of other charges and a very hefty margin. You can check with other online and offline dealers and then negotiate with the banks, and banks do negotiate. Even a 30-40 bps difference can create almost 1 per cent of a cost implication for you. So, if you are investing Rs 1 crore in your education or your expenses, then 1 per cent will come to Rs. 1 lakh. So, you need to look at all options and then decide. It can save you a lot of money.” 

He adds: “If you are just keeping your money in forex for your expenses, there are certain commissions, card rate, conversion commission, document charges, money handling cost, and so on that you need to consider. So, you have to look at all the costs involved, and find the best alternative.” 

For instance, HDFC Bank charges a flat fee of Rs. 500 for outward remittance up to $500 or equivalent. For remittances above $500 or equivalent, it charges a flat fee of Rs. 1,000. 
Sharma advises against buying currency from airports and hotels, as they charge exorbitant rates.

“That should be the last option. You should convert your forex one or two week upfront so that you can get the best rate for converting your currency. You need to be aware of the latest forex price alerts,” he further says.