Lock in exchange rate for UK Graduate School costs

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newcollegeman
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Joined: Thu Mar 02, 2017 11:16 am

Lock in exchange rate for UK Graduate School costs

Post by newcollegeman »

How do I lock in an exchange rate for Graduate School in the UK?

Is it better to exchange all the money I will need from US Dollars to UK Pounds & hold it in some kind of special account?

Or, is there a better way to do it?

I am in the USA until next summer.

Clueless,

newcollegeman
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newcollegeman
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Re: Lock in exchange rate for UK Graduate School costs

Post by newcollegeman »

Bump!
aspiring_kiwi
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Re: Lock in exchange rate for UK Graduate School costs

Post by aspiring_kiwi »

You've got some options here. Note that if you hold GBP in a non-US account, (worth more than 10K USD) you'll need to worry about declaring foreign accounts to comply with FATCA/FBAR.

You might want to open an account with interactive brokers. This (US) brokerage does allow you to hold cash in various currencies and offers exchange rates at spot for the cost of their commission ($2 for anything under $100K). So one option is to exchange the cash now to lock in the current price. (You can do it at market price, or place a limit order at a price slightly below market and hope that the normal trading range over the next day (or week) reaches your price. For example, a quote on gbp.usd yesterday shows it traded between $1.3212 and $1.3308

Option 2 is to buy currency futures to get the cash when you need it (in June 2022)? I've never done this, but note that there's less liquidity. https://www.cmegroup.com/markets/fx/g10 ... uotes.html

Option 3 is to buy call options that lock in the right to purchase GBP at a decent price. If you lock in a price a little above today's price, then the options will be inexpensive, but act as insurance against the exchange rate getting much worse.
https://www.cmegroup.com/markets/fx/g10 ... uctId=8099

From what I understand, options have even less liquidity than futures. I think you can buy both futures and options at interactive brokers. Personally, just exchanging the cash for gbp now (or at least half of it) would probably be nearly as good and a lot easier. After exchanging, you might look at whether there are any safe term deposit accounts (like bank CDs) that will pay enough interest over the next half year to make it worth your while (especially given the FATCA/FBAR headaches).

From Interactive Brokers (IBKR), when the time comes, you can just wire it out to where the money needs to go. Note that if you use your bank to ACH "push" the money into IBKR, the funds are available for withdrawal in 3 days. If you ACH pull the money from IBKR, then there's a 44 day hold on withdrawals.
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newcollegeman
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Re: Lock in exchange rate for UK Graduate School costs

Post by newcollegeman »

Thank you so very much: great help!

newcollegeman
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