Euro vs. US Dollar

Nov 11th, 2008, 12:45 PM
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I hear you Sue_xx_yy !

I understand exactly what you mean.

You analogy is pretty good .

Percy is online now  
Nov 11th, 2008, 07:57 PM
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I have bought euro far more than a year in advance of major trips to Europe based on what I believed to be the trend on rates, and saved hundreds of dollars as a result. My purchases were spread over an 8 or 9 month period. I had already planned to commence this year another round of buying in advance of a trip in 2010, and have no problem if I should also effectively lose some couple hundred dollars in the process; however, with 1 euro at today's closing rates being a little above $1.25, I see more potential of the dollar sliding downward, not gaining. However, anyone who wants to bet the farm on currency transactions is not a tourist, but, a speculator. While I am in some sense buying on my personal expectation that in 2010, the rates will be a lot worse, I also buy to put the euro in the lock box at the bank as a form of forced savings. This is a personal decision but not a roll of the dice as in I'll lose all the money betting against the house. It's merely a calculated risk with which I feel comfortable on the downside, given how much I'll invest, and happy to have the upside of more purchasing power of euro bought "today" if the dollar depreciates by "tomorrow" in 2010, but also happy to have the euro no matter what!
CapriAnniversary is offline  
Nov 11th, 2008, 08:42 PM
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It's called dollar cost averaging which is an investing technique whether it be individual stocks, mutual funds or....currencies.

For the average tourist, it's senseless to play this game.

Que sera sera...

It was widely predicted by "experts", not some amateurs on this board, that we were headed for a $2 euro and better get your euro now....guess what...THEY WERE WRONG..

Who is to say whether the euro will continue down...many countries in the euro bloc have economies that are further in the tank than is the USA...they tried to keep the euro strong by keeping interest rates high because countries such as Germany subscribe to it's better to have a stronger currency....I'll leave it to economists to argue right or wrong.

My attitude...when I get there, I'll take the euro I need out of the ATM (I need few euro in cash as I travel the proper way...everything large or small goes on my credit card with Capital One which doesn't even charge the 1% visa fee and gives me pretty much the exact interbank rate)..

Incidentally lost in this is what has happened to sterling which has hit an all time low against the euro and is right now at about $1.52 which is where the euro was about 2 months much further sterling has to fall is really a question...maybe the unthinkable..maybe par between the USD and sterling? Doubt it...but it may well settle around $1.30...can you imagine $65 US for a seat in the stalls at a London show....$3.25 for a pint at a pub...(I used £2.50 for a pint...don't really know what a pint is today at a British pub)

But of course, as an American I also see the down side....NYC did quite well with a weak dollar and all the tourists coming across the pond but now the stores are almost devoid of all those bargain seeking Europeans...oh well.

(BTW oil prices fell below $60 a barrel today and in many parts of the USA, gas is under $2/gallon can you believe????)
xyz123 is offline  
Nov 12th, 2008, 04:02 AM
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A non-cashable term deposit, being non-cashable, is also a form of 'forced savings.' Unlike the lock box, it returns interest.

Okay, admittedly these days the interest ain't great, but by 2010 it would at least pay the spread that the banks charge on the exchange - since of course the average person does not get the 'official' interbank currency market rate, especially when we're talking cash rates - i.e. the sale of actual currency notes. For example, as of 12 November, the average bank would buy € 100 for US 127. The same amount of euro would cost the average person on their credit card, US 129.54. And for the average person to buy € 100 in CASH, it would cost them US 132.08.

A couple hundred euro for convenience just before the trip isn't so bad. But stockpiling a couple of thousand of cash notes, interest-free, in a lock box, for 1 year - this would cost you:

€ 2000 in cash as of 12 November: US 2,641, about $50 over the credit card cost. Add in US 2641 * 2 per cent interest - about another $52 in a year's time. So, for a trip in 1 year, buying € 2000, cash, means you've spent $102 even if the currency rate remains the same - or if any 'dollar cost averaging' purchases manage to result in a true average. So in other words, the euro would have to rise .5 per cent against the $US in that time, just for you to break even, let alone have the hope of making any gains!!

I still say it would be more fun to take the $102, and play the tables in Monte Carlo with it - or better yet, buy a nice dinner. But, it ain't my money, so it ain't my call.

Sue_xx_yy is offline  
Nov 12th, 2008, 01:59 PM
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I follow your numbers Sue_xx_yy

I have been having a "cash box" at home for about 10 years now.

I know I have lost money, but not really that much because:

My simple math goes like this.

If you have $1000.00 in cash and let us say you got 6 % in a term deposit for 10 years.
( 10 years ago you could have obtained 6%....I pick 10 years because I have had my cash box for 10 years!)

Now no matter how often you compound this $1,000.00 over a 10 year period at 6 % you can never get more than $1,822.12 at the end of the 10 year period..

So you have earned $822.12 over 10 years or $82.21 per year.

Now you have to pay taxes on this ,and earned interest is taxed at the highest level according to your tax bracket.

Let us say that almost 50% of this goes for is a bit below that for the highest tax bracket.

That leaves me with $82.21 per year minus half for me about $41.00 per year.

12 months in a year so
divide $41/12 =$3.42 per month I would have earned had I had the $1,000.00 in the bank from 10 years ago until now.

Okay so I could have earned about $3.42 a month every month for 10 years.

But there is 4 weeks in a
divide $3.42/4 =85 cents a week for 10 year.

I rationalize to myself,that I can afford to lose 85 cents a week for 10 years to have the convenience of having the euros ( or pounds) in a cash box at home as sort of "spare" money, when ever I or a friend needs some !

Is this a good financial arrangement to lose interest money...of course not.

All the rest of my money is in the bank and I have Bonds, Terms Deposits and Stocks ( yeah,yeah ,I know ,right now I wish I had no stocks!!)

But for the person that wants to have the extra $ 102.00 that you mentioned to play the Casino in Monte Carlo...then your advice is good for him/her.

So has my cash box cost me money over 10 year..yes...but not that much ( at least that is the way I look at it

Percy is online now  
Nov 12th, 2008, 02:27 PM
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If the Bank of England reducs its interest rates to zero, as suggested here then the dollar will improve against the pound. The pound isn't the euro, of course, but, I also buy pounds for reasons similar to buying euro.
CapriAnniversary is offline  
Nov 12th, 2008, 02:45 PM
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I looked at two trips

A)2 people from Sacramento to Orange County and a week at the Disney California Grand-not park tickets

B) 2 people from San Francisco to Thailand during the same week

Thailand was cheaper...and you know that money would go a lot further in Thailand.

Everytime I go online it is cheaper to go to Paris than Hawaii. People cant believe how much we travel but it isnt as expensive as people think.

Its forums like this that make it do-able! Happy Planning
magialmemories is offline  
Nov 14th, 2008, 04:43 AM
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Percy--Just curious: where are you living that 50% would go to income taxes?
RufusTFirefly is offline  
Nov 14th, 2008, 08:11 AM
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It is below 50% tax ,as I mentioned, to make the math a little more simple I used 50% instead of 42%.

I have a call in to my Accountant to confirm with him what the highest tax bracket is, and what salary you have to have to obtain this.

Banks in many countries try to advertise that the more they compound for you , the more you earn....not really!!!

It is a nice gimmick !

Okay, just got off the phone with the Tax Accountant and the highest tax bracket here in 41 %.

I used 50 % to make the math simple.!

Watch that compounding
Percy is online now  
Nov 14th, 2008, 08:17 AM
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Oh yes ....

and the tax is higher in other parts of the country because each State or Province has its own tax added to the Federal tax.

So mine is 41 % where I live, and in a different region it is 46% !

Once you get over the highest salary bracket we refer to it is "50 cent dollars" , because for each additional dollar you earn the taxes take half ( almost !)

Percy is online now  
Nov 17th, 2008, 04:20 AM
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Wow! That's a lot! But maybe you get good services for the price.
RufusTFirefly is offline  
Nov 17th, 2008, 05:03 AM
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Wow! That's a lot! But maybe you get good services for the price.

Only sort of. If you live in New York City, for example, the highest marginal tax rate can be as high as 47.14% (35% federal, 4% city, 8.14% state). Of course, differing income tax rates apply for investment income and one's average tax rate is certainly something less than that, but 41% for a marginal tax rate isn't that ridiculous.

Just be glad you aren't in Sweden or Denmark, where the top rate is closer to 60%
travelgourmet is online now  
Nov 17th, 2008, 05:11 AM
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In Sweden and Denmark you actually get something for all those high taxes. ie medical, maternity leave, etc...
FrankS is offline  
Nov 17th, 2008, 05:44 AM
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Of course if you're in the 35% Federal tax bracket, you're making a pretty big pile of money. The 35% doesn't kick in for a single person until you reach $358,000 after deductions and credits, if I'm reading the table correctly.

Interesting to note that in the 1950's the highest bracket reached about 90%.
RufusTFirefly is offline  
Nov 17th, 2008, 06:01 AM
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In Sweden and Denmark you actually get something for all those high taxes. ie medical, maternity leave, etc...

If you are in the top marginal tax bracket in the US, you aren't overly concerned with medical care, as you will almost certainly have better coverage provided by your employer than you will get in Sweden or Denmark. Drugs, in particular, can be very, very expensive in Denmark. Don't overestimate the quality of what you receive from social services in Scandinavia.

Also, the gap in other taxes is probably even more dramatic than the gap in income taxes. Some of these are big hitters, like the 25% VAT (no food exclusion), high gas taxes, and 180% tax on cars in Denmark. Others are just annoying, like the DKK 2000 per year "media license" to support public tv stations that nobody wants to watch. And note that these taxes are highly regressive, working against the intent of the progressive income tax system.
travelgourmet is online now  
Nov 17th, 2008, 06:07 AM
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Of course if you're in the 35% Federal tax bracket, you're making a pretty big pile of money.

Absolutely. Not trying to suggest they deserve your sympathy, just pointing out that marginal tax rates in the US can get pretty high, as well. And note that the 35% federal bracket also applies to married couples making over $358k, as well. Still a big pile of money, but a salary of $180k is a lot more common than $358k.
travelgourmet is online now  
Nov 17th, 2008, 08:40 AM
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In Canada if you make $124,000.00 a year you are in the top tax bracket.

Yes, we have healthcare paid for and a lot of social programmes .

They are now trying to implement Universal Daycare.

Many high earner go to the USA (if they are able to ) where the tax systems is better !
jmvp is offline  
Nov 17th, 2008, 08:50 AM
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I think RufusTFirefly stated that the highesttax bracket in the USA requires earnings of $358,000.00

Since in Canada it is $124,000.00,you can see why someone would go to the USA where he can earn 358,000 before reaching the highest bracket.!

But there is no big influx of people into lower tax countries unless the climate is better and country is very stable.

From Canada to the USA (or vice versa) is an easy move. To move to England or Sweden is a much bigger step, and I do not think you make the move just for taxes .
jmvp is offline  
Nov 28th, 2008, 12:21 PM
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Okay Percy how did you get $1,822.12 if you compound as much as you can , the $1,000.00 at 6 % for 10 years.?,that you mentioned in your November 12 posting.
I am not able to get that?
jmvp is offline  
Nov 28th, 2008, 06:59 PM
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Do you Really want to know the math !
Percy is online now  

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