The weakening of the Indian rupee against the US dollar has caused concern among students studying abroad. Rupee volatility Affecting both existing and aspiring students planning to go abroad for education. Apart from tuition fees, students also spend money on their living expenses, and currency volatility often spoils their entire budget. Here’s what can be done to protect and manage yourself from currency fluctuations.
Buy Forex-Denominated Prepaid Cards
When students are traveling, foreign currency hedging is best done by purchasing foreign currency denominated prepaid cards, i.e. forex cards. A forex card is like a near term futures contract with zero premium. It can be loaded in one or more foreign currencies and used to make transactions or payments hassle-free.
In functionality, a forex card works like any other debit or credit card. However, they are pre-loaded with foreign currency at a specific rate that you agree to so that the rate does not fluctuate according to the current currency rates. This eliminates the rate volatility part, unlike rupee denominated cards, where customers may not be aware of the rate at which INR is converted into foreign currency while spending at a merchant location. Will go
Therefore, if you are traveling and want to manage your day-to-day living expenses, it is wise to buy currency on a forex card as you will never risk losing your money due to rate volatility apart from currency conversion charges. Will pick up Once you have loaded the currency into the Forex Card, it will be valid for 3-5 years depending on the validity of the card you have purchased.
Use the rate lock-in feature to get the best rates
If you are planning to buy a foreign currency card for travel or transfer your tuition fees to your university within a few days, you need to keep a keen eye on currency exchange rates. This becomes even more important in the present times when currency rates are highly volatile. Some fintechs are providing 24X7 booking and rate lock-in facility which you can use to your advantage. Book rates when they feel desirable to you. The rate lock-in feature will help you get the best forex rates within a specific window.
Use forward contracts to hedge rates on money transfers
Futures contracts are the best tool if you want to hedge against uncertainty in the future. Money transfers are usually high-value transactions, especially for student fees, etc. One can protect oneself against forex rates volatility by booking a forward contract and trading the forex rates. A forward contract is an arrangement with a bank that allows you to transfer money on a specific date (up to 12 months) in the future. exchange rate Which is agreed upon today.
Therefore, with a futures contract, you know what the exchange rate will be when the transaction takes place. However, futures contracts come with certain premiums that depend on their duration; So you should analyze the premium offered by your bank. Also, calculate the interest income received from holding INR in Bank Vs Bank. Decide on the cost of the futures contract and accordingly. Futures contracts can be booked by banks. You can approach your own bank and find out the premium on futures contracts.
open a foreign account
It is also possible to open a foreign currency account in the currency of payment. Therefore, the foreign exchange rates shall be the hedge rates as on the date of opening of such accounts. Account opening requires identification like passport, visa, student ID card, address proof, etc., and most universities have tie-ups with a local bank to open a student account. However, one must understand that forex deposits provide almost no interest income.
Students can prevent currency depreciation by carefully considering various options and choosing the right instrument keeping in mind their budget constraints, travel dates and length of stay abroad.
The author is the founder and CEO of BookMyForex.com