4 Ways to Protect Your Education Abroad Budget Against Rupee Falls
The weakening of the Indian rupee against the US dollar has raised concerns among students studying abroad. The volatility of the rupee has an impact on students, both existing and aspiring who are planning to go abroad to study. Apart from tuition, students also spend money on living expenses, and currency volatility often ruins their entire budget. Here’s what you can do to manage and protect yourself from currency volatility.
Buy prepaid cards denominated in foreign currencies
The best way to hedge foreign currencies is to buy prepaid cards denominated in foreign currencies, i.e. forex cards, when students travel. A forex chart is like a short-term futures contract with no premium. It can be loaded in one or more foreign currencies and used to make hassle-free transactions or payments.
In terms of functionality, a forex card works like any other debit or credit card. However, they are pre-loaded with foreign currencies at a specific rate that you have agreed upon so the rate does not fluctuate with current exchange rates. It eliminates the volatility part of rates, unlike rupee denominated cards where customers cannot be aware of the rate at which INR would be converted to foreign currency when spending at a merchant.
Therefore, if you are traveling and looking to manage your day-to-day expenses, it is a good idea to buy currencies on a forex card because you will never risk losing your money due to rate volatility, except for the fees of currency conversion. Once you load the currency into the forex card, it will be valid for 3-5 years depending on the validity of the card you purchased.
Use the Rate Lock-in feature to get the best rates
If you plan to buy a forex card to travel or transfer your tuition to your university in a few days, you should keep a close eye on the exchange rates. This becomes even more important today when exchange rates are very volatile. A few FinTechs offer 24/7 reservations and a rate lock feature that you can use to your advantage. Book the rates when they seem desirable to you. The rate lock feature will help you get the best exchange rates in a specific window.
Use futures contracts to hedge money transfer rates
Futures contracts are the best instruments if you want to hedge against uncertainty in the future. Money transfers are usually high value transactions, especially those for school fees, etc. You can hedge exchange rates by taking out a forward contract and protect yourself against rate volatility. A forward contract is an agreement with the bank that allows you to transfer money on a specific date in the future (up to 12 months) at an agreed exchange rate today.
So, with a forward contract, you know what the exchange rate will be at the time of the trade. However, futures contracts come with certain premiums that depend on their duration; you must therefore analyze the premium offered by your bank. Also calculate the interest income earned by keeping the INR in the Bank Vs. Cost of the futures contract and make a decision accordingly. Futures contracts can be reserved by banks. You can get in touch with your own bank and find out the premium on futures contracts.
Open an account abroad
It is also possible to open a foreign currency account in the payment currency. Therefore, the exchange rates on the date these accounts were opened would be the hedged rates. Identity document such as passport, visa, student card, proof of address, etc. is required to open an account, and most universities have a link with a local bank for opening the student account. However, it should be understood that foreign currency deposits offer virtually no interest income.
Students can hedge against the currency crash by carefully considering various options and choosing the right instrument based on their budget constraints, travel date, and length of stay abroad.
The author is Founder and CEO, BookMyForex.com