Forex Articles

You're probably not at the helm of a large multi-national company; if you were, foreign exchange rates would be near the top of your list of things to watch each day. But if you're an international traveler, or just planning a one-time vacation overseas, you might want to keep an eye on news concerning foreign exchange rates. The fluctuation of the dollar against world currencies (and in the last year, it's been on roll, strengthening 12% in 2014) could have a powerful impact on the cost of your trip. That's why it can sometimes pay to Time Your Travel Abroad to the Exchange Rate.

The most direct way the exchange rate affects vacations is in the value of your cash. The rate is constantly changing – by the second, in fact. For example, let's say you want to exchange dollars for euros. As of Aug. 24, 2015, it cost about $1.13 to get €1; on Aug. 6, it only cost $1.08. Contrast that to the beginning May of 2011, when you paid about $1.47 for €1. You could safely say that four years ago a trip to any euro-currency country would have cost you significantly more.

None of these are huge differences, but the point is, if you're on an extended trip, any volatility can add up. And don't forget that currency exchange firms also charge an exchange fee, making your dollar slightly less valuable than the going rate. (For some money-saving tips, see Best Ways to Save on Currency Exchanges.)

The stronger the U.S. dollar is, the cheaper your airfare – maybe. Why? Because the value of the airlines' dollars is just as strong as yours. A strong buck can buy more fuel for less money, especially with the price of oil at $40 per barrel (a six-year low) at this writing. In fact, the cost of doing business is lower overall, for American-based firms that import a lot, and a strong dollar entices more Americans to travel abroad.

The effects may not be that dramatic, however. A higher demand for seats and lower capacity in the system could well mitigate any effect currency may play. When the exchange rate favors the dollar, for example, more Americans may choose to take foreign vacations to capitalize on this fact. And airlines are generally more concerned about the cost of oil than about exchange rates so they tend to fill up their planes, which can make airline seats harder to come by –and more costly.

While the exchange rate may not affect the cost of your airline tickets, it definitely has an impact once you've arrived. If the dollar is stronger compared to that country's currency, it reflects in everything (from eating out to show tickets to hotel rooms), making your vacation cheaper. How much cheaper? It can vary a lot, but be substantial. "Depending on the country, hotels, restaurants and shopping may be anywhere from 15% to 50% cheaper now than this time last year," crowed a January, 2015 Fortune Magazine article. "You can thank sputtering overseas economies."

Now that you have your basic economics lesson for the day, how does that affect your plans? First, you can avoid worrying about currency exchange rates by taking a minimal amount of foreign cash with you. If you have a no-foreign transaction fee credit card, you can use it and pay for purchases just as you would in the United States. The credit card company handles all of the currency exchange. (Look here to find some Top Credit Cards With No Foreign Transaction Fee.)