Steve

As I am sure most of you know the American dollar is very strong and Euro very weak at this time. As we are planning a trip to Italy for next year I have thinking of buying some Lira now to lock in the good rate. The downside of course is that the rate of exchange may not be as good as I could get with my credit card while in Italy, I lose interest on my money, and the Euro may go down even more. The upside takes effect if the Euro makes a significant comeback. Any opinions out there?

xxx

You'll do better by opening an Ameritrade account. $8 a trade.

Sjoerd

If we were able to predict currency exchange rates, we would be rich.... So my guess is as good as anyone else's. First, the euro is substantially undervalued now by at least 10-20%. So it will go up. The big question is: when? Nobody knows. My guess is that will happen from 2002, when euro coins and banknotes will be introduced. Some people say it will happen after the US presidential elections in November. Apparently, the US dollar has in the past always dived after elections. I think it is not such a bad idea to buy euros now. But don't buy lira, but open a euro savings account with your bank. That way, you will also get interest on your money.

dornbusch

A number of US investment banks believe that the Euro is actually OVERVALUED at current rates, and that it should fall still further, given the wide economic growth disparity between the US and Europe (4.5% vs 3.0% long run GDP growth). The joint central bank intervention to prop up the Euro last month scared off speculators for about a week; now the currency is softening again. A reasonable medium term target for the Euro is 0.80.

Ed

Not only a question of whether better or worse, but how much. <BR> <BR>In most cases, presuming you're talking of exchanging less than one million dollars in a single transaction you're likely, in the US, to pay as much as 10% more in commission/exchange cost as you would in Italy, or through using your credit/cash card. <BR> <BR>Then you've got to think about the opportunity cost (lost interest/investment income) of tying your money up in a non-productive investment. <BR> <BR>It would be unusual, indeed, for the movement, either way, to be more than 5-10% given where the exchange rates are now. I think 80 cents is an unlikely low for the euro, and parity ($1) is unlikely high. <BR> <BR>My guess is that in the likeliest favorable case you might save 1% by investing now, taking into account all costs and lost opportunity. On the other hand the likeliest unfavorable case is probably a cost of 10% or more. For us this wouldn't be a good risk. <BR> <BR>But consider this. You're going to spend how much in lira on your holiday? $1,000? $2,000? $3,000? So even if you had a good run of luck you'd likely make what, $50? $100? <BR> <BR>Is it worth dabbling in an area (currency markets) about which you likely have little knowledge for such a small gain, and perhaps such a large worry? <BR> <BR>For the ordinary traveler who hasn't $1,000,000 or more to gamble in the futures market, www.twenj.com/moneyand.htm has about all that one needs to know to use ones funds wisely in their vacation to Europe. <BR> <BR>Ed

John

Don't be silly. You talking vacation in Italy, here, not placing currency bets in Las Vegas. Don't be obsessing about exchange rates; just take the plastic and concentrate on having fun. Cheers, John