When there are reports that the exchange rate is declining, people can not help but wonder if buying a few dollars can be good business. Even if they are about to make a trip, the thrill of knowing that the dollars ‘are cheap’ can lead to impulse buying.
Imagine that you ‘re about to go on a trip to the United States (or any other country, Colombia or Panama, for example) and on that day you hear on television that the exchange rate has dropped to 12.50 pesos (Mexico) per dollar, just think that your holiday will be cheaper if you purchase about 10,000 dollars to spend.
The premise sounds right but there are some things that should be considered:
1.The exchange rate announced by the Bank of Mexico is less than the price at which banks and exchange houses sell the currency, so when you buy dollars, probably it will not be at 12.50 but 20 or 30 cents up.
2. If you have bought too much dollars you must convert them into pesos at your return; however you could lose the difference between the price at which you bought and the price at which banks will buy.
3. Most important thing to remember is that carrying too much cash is not a safe option. According to the Customs Law, any person entering or leaving the country and carrying cash, domestic checks or foreign money orders or any other note receivable or a combination thereof, in excess of $10,000 will be obliged to declare to customs authorities in the official forms approved by the Management Service Tax.
4. The market conditions are crucial to the exchange rate; so the exchange could fall further.
5. Going to a country where the U.S. dollars are not used. You are subject to variations in the exchange rate with local currency.
When should I buy dollars for my trip?
2012 will be a difficult year for the markets, but there are some guidelines that can help you plan the purchase of foreign exchange. According to a study by Bank Base, the Mexican peso strengthened in the second quarter as a result of the agreements in Europe about debt control. However, the study says that in second quarter some volatility may return as a result of the presidential elections in the country.
One technique that can help make the exchange rate not to play tricks, is to monitor it and buy little by little when the price goes down.
What about other means of payment?
When you pay by credit card or debit card abroad, the bank takes its reference rate for the collection and depending on your contract will be applied (or not) a fee per transaction.
This is convenient because you avoid carrying cash and sometimes the bank’s exchange rate is preferred, but you must make sure that your card is enabled for use outside the country, otherwise, you run the risk “freezing” your account and will have no way to pay.
Traveler’s checks are also a good alternative. The Finance Practice website explains that Visa are checks issued by banking institutions to be used abroad. In case of lost or stolen checks, money is still intact, as well they are collectible upon your return to the country in local currency.
This payment option should be kept in mind that although they are widely accepted, the best, according to the Visa site is to have a combination of checks, cash and card use. This will help reduce risks and deal less with the exchange rate.