Need help on deciding about the pound and grad school tuition?
 

My daughter will be going to graduate school in the UK this fall. We have opened a bank account with HSBC to transfer funds to the UK from the US. My daughter has read a few articles in various magazines that say that the British Pound will be around $1.35 USD in July or at least will fall quite a bit.She is trying to decide whether to wait to transfer her funds or do it now while the pound is hovering around $1.50 .USD I know, I know-its impossible to speculate about such things because if we could we would all be wealthy. The problem is oil is going up and probably so will everything else?

While I travel for work overseas everyweek and I know that to speculate is improbable, I am trying to get a feel if we should wait or go ahead and transfer her tuition money into the UK account.She has saved very hard for the money for the past two years so is hoping to make the most of it.Those of you living in the UK-what are your thoughts? We are talking about over $20,000 USD so its a big chunk of change. Thanks for any opinions.

Do you have to transfer it all at once because of bank fees, or could you do the equivalent of dollar cost averaging, and make several smaller transfers at different times? (Although I'm waiting with interest to see if anyone has a good crystal ball.)

It's possible the £ will fall 10-15% against the $ over the next six weeks. It's not quite as likely it'll rise that much - but it's also possible. There are gazillions of factors influencing the relationship and if there really is a writer saying "it will fall" (or the opposite), as opposed to "it'll probably fall", that writer is a hotair merchant whose judgement can't be trusted.

The central fact about the £:$ relationship is that the UK and US economies were performing virtually identically (inflation, unemployment, growth, fiscal deficit, trade deficit, interest rates) when the £ was at $2.10 and stayed that way when the £ was at $1.30-odd. The world foreign exchange industry is dominated by London traders, and they panicked more last autumn than traders anywhere else.

Over the past two months, it's begun to look pretty clear that the sky isn't going to fall in, that all developed economies are going to have a couple of more or less equally grisly years and that the nonsense London's cocaine-fuelled forex dealers were churning out about "Reykjavik on Thames" was just that week's fashionable mantra. Or rather, the UK economy's going to pretty much the same hell (well,
Purgatory, really), in the same handbasket, as the US and Eurozone.

Your problem is, though, that it's impossible to predict what the boys and girls at the trading desks will get their knickers in a twist over next.

You're not talking about $20,000. You're talking about $3,000: the amount to be gained or lost from a 15% move in the rate. That's not a million miles away from how much you can gain or lose from choosing the wrong intermediary to translate the money.

Given the uncertainty, the prudent move has to be to accept you can't predict and to hedge your bets. Unless someone's got a safe hedging system (something I think is a contradiction in terms), you should transfer in a couple or three well-spaced tranches, and investigate the rate HSBC's offering with alternatives like www.xe.com.

<<Unless someone's got a safe hedging system (something I think is a contradiction in terms), you should transfer in a couple or three well-spaced tranches, and investigate the rate HSBC's offering with alternatives like www.xe.com.>>

I agree with Flanner, there are other FX companies such as www.hifx.com that work as an intermediary between your bank in the US and the UK and offer better exchange rates.

Geordie

Or you can buy sterling futures.
Go to a foreign exchange specialist like http://www.currencies.co.uk/ (or a similar firm in US) and get a quote for 3 or 4 months sterling. If the market thinks sterling will be weaker, you get a discount on the current rates. If their opinion is for sterling to strengthen, you pay a premium. The good thing about buying sterling in advance is you only need to pay a small premium now to lock in the future rate, and pay the balance when you actually buy sterling (take delivery) in a few months' time.

Thanks everyone for your imput on this.We appreciate the other places to check out what the pound maybe doing in the upcoming months.

I organize garden tours in the UK, Europe, South Africa, etc, and transfer large sums, $50,000-$100,000+, to make payments in foreign currencies several times a year. I've been doing this since 1996. I have to set a rate for the final invoices to tour participants about three weeks out, before I transfer the funds. To say this causes anxiety for me every time invoices and payments loom is an understatement. If I get it wrong, it can mean the difference between a profit and a loss on a tour. So far every tour has shown a profit.

The Foreign Exchange department at my bank, US Bank, has been an enormous help. The traders are very willing to give me the benefit of their expertise and experience each time I call, and they've been right on the mark, within a point or two, every time. They also waive the normal transfer fees for me, not a huge savings but every little bit helps.

One thing you might keep in mind: there are discounts on exchange rates to be had if you transfer larger amounts at one time. It will cost you more if you break your transfers up into several smaller amounts.