For our long delayed, long awaited trip to Italy next May, we are trying to book hotels now and wondering if we should consider prepaying the tab in full, to hedge against further deterioration of the dollar. If it were just one room for one day, the difference might not be so great, but we have 4 people traveling for 2+ weeks, and it could add up.

Similarly, would it make sense to buy traveller's checques in Euro denominations now for cashing in Italian banks on arrival (know better than to expect to use them to pay for goods or services)?

A foolish hysteria or a prudent measure? How's your crystal ball?

I doubt you'd come out ahead with TC, given commissions and fees, compared to an ATM, unless the fall of the dollar is going to be truly spectacular, which no one knows at this point.

I prepaid for hotel rooms in US dollars for my previous trip this year (through Priceline.com). I don't know if the same deals would have been available at a later date, but if the had, the US dollar was actually slightly better at the time of my trip five months later than it was when I paid. (Of course I was really using Canadian dollars, and so I think I benefited overall, or at least it came out as a wash!)

If you prepay your hotels now, you do have the slight risk of the hotels losing track of your payment and double-charging you. You can eventually resolve this, but it's a bit of a pain.

Hi cassandra,

Consider that you could earn interest on your money if you kept it.

Do you expect the dollar to fall more than the interest earned?

In addition, today's money is always worth more than next year's money.

Many travel insurance policies would cover that particular contingency.

Essentially you are betting that the dollar will fall farther than it is right now to such an extent that you will gain or save money by buying euros now.

It becomes a very complex question really if you invest in traveler's checks.

Those financial instruments do not bear interest which means there is also a foregone interest expense as well as an exchange cost. Even if you purchase American Express checks, you will end up paying about 5% more than the wholesale bank rate.

(I had to buy some to prepay a hotel deposit at a place that refused to accept a credit card of any type. I either paid in advance, or I would not guarantee my room in a popular area.)

Then assuming you can cash the checks at an AE office at the euro face value with no additional shrinkage, your gamble will pay off if the decline of the dollar continues at its current rate.

The only other way I can think of to beat the cost of the checks is to see if the hotel will prebill you now against your credit card number. That way you can do the exchange for the wholesale bankrate + 1%. (Assuming your credit card issuer does not tack on that sleazy 2% extra for no service added.) I never did that with a hotel, but I have with a tour company.

The cost in US dollars of a euro has risen steadily since August, and there has been no signifcant downward period since then.

I have no idea where the upward trend will stop, but the predictions from the experts is that the US Treasury will not intervene until the rate reaches
$1.45 to €1. When and if that is true, I have no clue.

Some European sources are saying that if left to free market forces, the dollar will sink to the point that the cost of one euro will be $1.50 to $1.55.

If the current rate of the price of the euro continues at the present rate, the $1.45 point is about 3 months off.
If you figure that the price per euro was at the $1.20 level in August and reached $1.34 + today, then you can figure on $1.48 per euro by the end of February. That is a 10% increase over the present price level in just a little over 3 months.

If the dollar curve flattens out, the worst you would lose is a few months of interest had you not paid it out. One thing to consider is that if the value of the dollar does flatten out, it is not likely to start falling again at the same rate at which it went up.

Our balance of payments is far too negative to permit a rapid turn around.
I think your gamble has less down side risk than upside.

If we knew what the short term curves would do, a lot of people would get rich in currency hedge funds.

I would pre pay as far ahead as May though I see the temptation to do so. We've got a trip planned in February and have pre-paid the hotel. There's a reasonable cancellation policy so the money risk is small.

Amending...to say "I wouldn't pre pay..."

How will you feel if you pre-pay now and by the time you arrive the dollar has RISEN against the Euro?????

It would make more sense to simply buy euro-denominated stocks now - - ahhh... but if you only knew which ones!

Best wishes,

Rex

Date: 12/07/2004, 07:02 pm
Message: Amending...to say "I wouldn't pre pay..."

WHAT do you think this IS? The Congressional Record or something?!

Getting back to the question, I HAVE pre-paid some things within the past year and it was a good move, but I'm not a huge advocate of doing that going forward. Some chains, such as the Inter-Continental group, offer decent discounts for pre-paying. With that added element, you can cover some currency movement either way. The downside is that once you're booked, you can't make changes or cancel under some of these rates.

I pre-paid my hotel in NYC for February last October (paid $ but already converted on my CC to &pound. What with the $ slide, how dumb am I?? Then again, I like the comfort of knowing that it is done and dusted and it's another thing I don't have to find the money for in 2 months time.

It's clear some of you think I'm clueless. And maybe I am. But I promise you I have considered up-sides and down-sides, and wasn't seriously considering the traveller's checque option -- was just curious -- as I'm curious about what others would do.

Re: prepaying -- I have been asking hotels what the refund/cancellation policy is and waiting for replies. Also looking into trip insurance, but there are some odd caps and definitions sometimes.

And of course, I know this is not "like" gambling, it IS gambling; and yes, if the dollar went back up, we'd have lost something.

I have been hearing projections that the dollar is headed to 1.50 to the Euro, which is approx. a 10% change, which is quite a bit more than I'm getting in interest right now. If the dollar did somehow manage to start to turn around, I doubt it would go by May much below the 1.29 that would equal the 4% that a few instruments are bringing now. Granted: these are very crude calculations (extremely "simple" interest over 1/2 year).

But it's interesting how people think about these things, and I wanted to see what people thought about how certain they are that the dollar will keep sliding and for how long -- and whether most people would "gamble" a prepayment or "gamble" on delaying payment. I admit I hate gambling either way.

NBC News tonight did a segment about all the Europeans coming to the US and shopping like crazy - that can't be all bad! I did the same thing about 20 years ago in Great Britain - my daughters and I are still enjoying the Waterford, china, etc. You just have to roll with the punches. In other words, when you go to Europe now, just pay for your hotel, food and entertainment (try to work in as much "free" entertainment as possible)- and DON'T SHOP!

(Okay I asked for it when I said "foolish hysteria"....) ;-)

Cassandra, I wish I had a retrospective crystal ball, because I would have bought Euros and pounds with Canadian dollars around Nov. 1 (I'd have to look up the exact date). I can get them from a currency exchange bureau that charges 2% over the interbank rate, about the same as my credit cards if I use them for Euro purchases. The CAD has slid quite a bit against these two in the past week or two. But realistically this change, even though it looks large, probably won't mean more than $50 or $100 at my budget level, at the most. I'd still rather have it than not, though!

Cassandra I think it is a good question. Some hotel chains offer rates in $ (I have seen this in Scandinavia), that would let you budget your trip better. As far as the time value of money I really don’t think it would be that much at the current interest rates. I am risk adverse so I would prefer to know what I am paying for 2 weeks, just check out the cancellation policy.

I don't know where you are getting this notion that you are "clueless" from what people have posted. They are giving their opinions and being honest, not passing judegment on you. But don;t forget, it is only a travel board and not anyone's scorecard in heaven, doctoral dissertation, etc., etc.

Yesterday the dollar rose slightly against the Euro..would you have gained or lost had you prepaid?

I WOULD agree that prepaying full amounts as some hotels will allow AND getting a substantially cheaper rate because of that might be a better idea, especially if you think there is little possibility of your having to cancel. I'm always tempted to do it but I usually make hotel reservations 6-12 months out and inevitably something changes.

Have a great trip regardless.

Okay, only semi-clueless? Anyway: Thought some might be interested in discussions w/DH and DS on this. Some of DS's financial whiz buddies in the business are seeing a 1.50 psychological bottom (or top) but probably just about in May. Nonetheless, we decided a) no one can be sure, either way and b) trip insurance to cover loss of a prepaid room would eat up the difference anyway. Although we'll insure the trip anyway, so insurance is a fixed cost, we would pay more for more coverage if more had been paid up front. So it's kind of a wash, even leaving out issues of lost-if-pitifully-small interest on savings.

The clincher: 3 of the 4 hotels we've been talking to don't seem to want to deal with prepayment -- they agree in principle and then back down. SO we're booked and going to live with the float.

For others pondering all this: what started me thinking about this was the possibility of booking hotels through American Airlines Vacations (or any package-deal you might get through an agent). We found some very good deals for Rome, made more attractive knowing that prepaying in full would lock in the exchange rate. BUT we preferred a hotel not in their group, AND the fee for their waiver of no-refund (i.e. insurance) would have eaten up the savings.

Nonetheless -- people concerned with this and liking the selection of hotels offered by such services might consider prepaying that way -- no hassle re: who you deal with if you have to cancel.