Exchange rates and investment - can anyone assist?
Discussion
Hi,
I have an issue in knowing what to do re exchange rates.
Here is my situation;
I live in Bali and as I have a family visa (my wife is Indonesian) I took advantage of the interest rates here and stuck a sum in the bank for a year. The savings bond ends in December and will pay me 6% after government tax.
So my £100,000 becomes £106,000, pretty straightforward so far.
However, this is where I get confused as to the best route. When I brought my sterling over here it was buying IDR20,000 to each £1. Now though the rate (thanks to the Brexit) is around IDR16,700.
This means that my original stake plus interest if I now convert it back to sterling is no longer £106k but £127,000.
In other words that's 27k I have 'made' overall rather than just £6k which I was expecting, thanks to exchange rates/weak sterling.
But is this a real gain? Should I bring some of this back to the UK? We do spend a couple of months in U.K.a year.
I guess this is all just a gain on paper unless I actually convert it back to sterling?
Not my area of expertise so any advice would be really appreciated! Thanks.
Also when heading back to U.K. in November for a few months is it better to use money I have here in Indo to buy sterling at this good rate or better to just spend money from my UK bank account...?
As you can see I'm struggling with this....
I have an issue in knowing what to do re exchange rates.
Here is my situation;
I live in Bali and as I have a family visa (my wife is Indonesian) I took advantage of the interest rates here and stuck a sum in the bank for a year. The savings bond ends in December and will pay me 6% after government tax.
So my £100,000 becomes £106,000, pretty straightforward so far.
However, this is where I get confused as to the best route. When I brought my sterling over here it was buying IDR20,000 to each £1. Now though the rate (thanks to the Brexit) is around IDR16,700.
This means that my original stake plus interest if I now convert it back to sterling is no longer £106k but £127,000.
In other words that's 27k I have 'made' overall rather than just £6k which I was expecting, thanks to exchange rates/weak sterling.
But is this a real gain? Should I bring some of this back to the UK? We do spend a couple of months in U.K.a year.
I guess this is all just a gain on paper unless I actually convert it back to sterling?
Not my area of expertise so any advice would be really appreciated! Thanks.
Also when heading back to U.K. in November for a few months is it better to use money I have here in Indo to buy sterling at this good rate or better to just spend money from my UK bank account...?
As you can see I'm struggling with this....
Congrats on a savvy FX trade.
The answer to your question really relates to how your ongoing expenses in life will look.
If you are predominantly based outside the UK, then GBP gains are fairly irrelevant.
(Where you get your GBP from is also irrelevant, it's fungible so a GBP from your bank account is the same as a GBP converted from your other accounts. But use the UK bank account just to avoid exchange fees.)
Also you need to be careful thinking you just made a tasty IDR 6% return.
Typically high interest rate countries are also very high inflation.
Brazil is a good example.
10% interest rate but everything goes up in price by 10% every year!
It tends to even out in the wash.
So saving in the bank isn't generating what are technically called "real" returns... sorry. (Obviously better than NOT saving in a bank!)
In summary, you live out there, you have to pay IDR every day in order to live.
If you never intend to return to the UK, then gains in GBP are nice for the holiday but unless you spend THE LOT, aren't hugely helpful.
It's the equivalent of a yank thinking he has made a killing in his current account because it's gone up in GBP so his one week holiday to London means he's rich, IYSWIM.
The answer to your question really relates to how your ongoing expenses in life will look.
If you are predominantly based outside the UK, then GBP gains are fairly irrelevant.
(Where you get your GBP from is also irrelevant, it's fungible so a GBP from your bank account is the same as a GBP converted from your other accounts. But use the UK bank account just to avoid exchange fees.)
Also you need to be careful thinking you just made a tasty IDR 6% return.
Typically high interest rate countries are also very high inflation.
Brazil is a good example.
10% interest rate but everything goes up in price by 10% every year!
It tends to even out in the wash.
So saving in the bank isn't generating what are technically called "real" returns... sorry. (Obviously better than NOT saving in a bank!)
In summary, you live out there, you have to pay IDR every day in order to live.
If you never intend to return to the UK, then gains in GBP are nice for the holiday but unless you spend THE LOT, aren't hugely helpful.
It's the equivalent of a yank thinking he has made a killing in his current account because it's gone up in GBP so his one week holiday to London means he's rich, IYSWIM.
Agree with Walm: we were living in Japan, but still had a mortgage etc in the UK. We were paid in JPY so when the rate moved from 202 to 120 JPY/GBP we sent every possible yen home to pay the mortgage off. If we had not have had the need to repatriate cash, then we probably wouldn't have.
Thanks for the responses - very interesting.
The comment re inflation kind of makes sense, except that for me (coming from UK) things are on the whole very cheap here. For example they could double the price of petrol tomorrow and I doubt that I would notice. Whereas when I lived in the U.K. If the price had doubled I would certainly have noticed!
I guess its just getting my head around this unexpected 'gain'.
By the way, no genius on my part - just lucky timing. I would in fact have had an even better rate if Barclays Bank weren't incapable of changing a phone number on their system (after being notified repeatedly of my new number). Ended up paying me just over £1k in compensation for that error.
As to what the rates might do - I've no idea. Not my area of expertise at all as I'm sure you can tell.
Re the mortgage comment - we own the property outright here and and I also own a flat in the U.K. outright as well; gives a rental income. So no mortgages to pay off or play with rates/fluctuations/overpayments etc.
Also for info.....a reasonable salary for people here is around £4000 a year.
The comment re inflation kind of makes sense, except that for me (coming from UK) things are on the whole very cheap here. For example they could double the price of petrol tomorrow and I doubt that I would notice. Whereas when I lived in the U.K. If the price had doubled I would certainly have noticed!
I guess its just getting my head around this unexpected 'gain'.
By the way, no genius on my part - just lucky timing. I would in fact have had an even better rate if Barclays Bank weren't incapable of changing a phone number on their system (after being notified repeatedly of my new number). Ended up paying me just over £1k in compensation for that error.
As to what the rates might do - I've no idea. Not my area of expertise at all as I'm sure you can tell.
Re the mortgage comment - we own the property outright here and and I also own a flat in the U.K. outright as well; gives a rental income. So no mortgages to pay off or play with rates/fluctuations/overpayments etc.
Also for info.....a reasonable salary for people here is around £4000 a year.
Edited by jdw100 on Friday 7th October 05:45
jdw100 said:
The comment re inflation kind of makes sense, except that for me (coming from UK) things are on the whole very cheap here.
They are cheap for a Brit and so you are quite likely to miss "small" 5-10% moves on a y/y basis.It has been coming down nicely but was 6% a year ago!
http://www.tradingeconomics.com/indonesia/inflatio...
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