euro vs. sterling conversion


G

g

Hi all,

I've got a banker's draft of all my savings in Euros, which I took out
from my bank in Germany before coming back to the UK (where I live
now). Now I don't know what to do with it. Place it in a fixed
deposit foreign currency account where the interest rates are as low
as 1.05%, or convert to sterling now and potentially lose out on
favourable exchange rates later? I won't be needing the money for at
least a year, if not more. Any suggestions? And if you reckon
convert to sterling, then can you suggest the cheapest possible place
to do it?

Many thanks in advance.
 
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G

Guttorm Christensen

Hi all,

I've got a banker's draft of all my savings in Euros, which I took out
from my bank in Germany before coming back to the UK (where I live
now). Now I don't know what to do with it. Place it in a fixed
deposit foreign currency account where the interest rates are as low
as 1.05%, or convert to sterling now and potentially lose out on
favourable exchange rates later? I won't be needing the money for at
least a year, if not more. Any suggestions? And if you reckon
convert to sterling, then can you suggest the cheapest possible place
to do it?
Looking at the short term Euro yield curve (see rates at for example
<URL:
http://www.marketprices.ft.com/markets/currencies/international>) it
would seem that the Euro rates will be stable (or marginally
increasing) around the current level.

The Sterling rates have a more significant upward trend, so are
expected to rise more than the Euro rates, and probably move upward
rather than staying around the current level.

The key question is whether or not you will be looking at converting
the money to Sterling only to benefit from the difference in interest
levels, and convert back to Euros later. If this is the case you are
talking about speculating in the FX market which is not advisable for
private investors with small (?) investments. (It also has substantial
risk as the differences in interest rates are expected to reflect
expectations of changing exchange rates)
 
J

Jon S Green

Hi all,

I've got a banker's draft of all my savings in Euros, which I took out
from my bank in Germany before coming back to the UK (where I live
now). Now I don't know what to do with it. Place it in a fixed
deposit foreign currency account where the interest rates are as low
as 1.05%, or convert to sterling now and potentially lose out on
favourable exchange rates later? I won't be needing the money for at
least a year, if not more. Any suggestions? And if you reckon
convert to sterling, then can you suggest the cheapest possible place
to do it?
My best advice is -- please, for crying out loud, don't rely upon the
advice of a random set of people in a newsgroup, when your life's
savings are at stake!

Having said that, and noting that my advice -- as is the case for anyone
else's here -- is worth exactly what you paid for it (nothing
whatsoever):

Let's work the maths, here. You could get over 5% in a sterling
account. You'll get only 1% in a Euro account. The only way that it's
worth waiting to exchange would be if you expected the Euro to get 4%
stronger (per year) or more, against the pound. If the Euro gets weaker
instead, you stand to lose (I assume) quite a lot -- certainly a large
percentage.

The next general election will be any time between now and 2006, and it
will affect the exchange rate markedly. We could have another terrorist
atrocity of the 9/11 type, on British soil. Any of a large number of
things could happen to make a substantial change in the exchange rates.
The only thing is -- neither I nor anyone else here can predict whether
the rates will go up, or down, or by how much.

Right now, you *know* what the exchange rate is, and you know you'll get
a better rate of return in a sterling account. If it was my decision,
I'd convert now.

Regarding exchange: you can get a much better rate (and lower charges)
if you go to a currency broker than if you simply accept the High St.
bank exchange rate. Do a bit of research; find a currency broker to do
the conversion at a rate that suits you, and the amount that you're
exchanging.


Jon
 
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J

John Bishop

My best advice is -- please, for crying out loud, don't rely upon the
advice of a random set of people in a newsgroup, when your life's
savings are at stake!

Having said that, and noting that my advice -- as is the case for anyone
else's here -- is worth exactly what you paid for it (nothing
whatsoever):

Let's work the maths, here. You could get over 5% in a sterling
account. You'll get only 1% in a Euro account. The only way that it's
worth waiting to exchange would be if you expected the Euro to get 4%
stronger (per year) or more, against the pound. If the Euro gets weaker
instead, you stand to lose (I assume) quite a lot -- certainly a large
percentage.

The next general election will be any time between now and 2006, and it
will affect the exchange rate markedly. We could have another terrorist
atrocity of the 9/11 type, on British soil. Any of a large number of
things could happen to make a substantial change in the exchange rates.
The only thing is -- neither I nor anyone else here can predict whether
the rates will go up, or down, or by how much.

Right now, you *know* what the exchange rate is, and you know you'll get
a better rate of return in a sterling account. If it was my decision,
I'd convert now.

Regarding exchange: you can get a much better rate (and lower charges)
if you go to a currency broker than if you simply accept the High St.
bank exchange rate. Do a bit of research; find a currency broker to do
the conversion at a rate that suits you, and the amount that you're
exchanging.


Jon
email.

I agree with the general sentiments. I work with Euro/Stg exchange rates
every day, as I import things priced in Euros. The rare has moved steadily
up in the last year, and the pound is currently buying 1.4811 Euros. I have
seen it move from 1.40 to 1.45, staady a while, then move up to 1.51. It has
now started a slow decline. Who knows if this will continue, or go back up?
As the post above says, the rate depends on interest rate differences in the
two currencies.

My personal view is you should convert if you need the money in the next
year. The better returns in STG will outweigh the transfer (just) and I
don't see the Euro getting weaker. If you decide to do it, your bank can put
you on to their dealers who can quote you a rate for conversion and will fix
it. You then use this contract with your local branch. Don't whatever you do
just ask them to convert it. If you don't like the rates, you can get other
money brokers to do it for you.

John
 

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