(Potential) Once in a generation foreign currency opportunity. How best to effect it?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
TooOldForThis
Posts: 19
Joined: Fri Mar 01, 2019 3:18 pm

(Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by TooOldForThis » Mon Mar 25, 2019 9:50 pm

Based on the recent activities in the UK around Brexit, I'm expecting a generational opportunity to take on pound sterling.

Note, this is not an investment request, I'm aware of several funds/ETF's that give exposure to the pound for my investment accounts. I'm talking about cold hard cash to be used over the next 15-20 years.

I spend enough time in the UK to want to protect against disadvantageous exchange rates once the EU/UK situation stabilizes and take advantage of the current instability. I have a target exchange in mind (roughly $1.16) and would like to begin amassing GBP as the current rate approaches historical lows close to $1.20. Eventually, I'm thinking about $10,000-$50,000 in cash with the latter probably sufficient to last me to end of life for my UK travels.

What options are available to me to exchange USD for GBP in cash with little to not vig on the purchase? (Certainly no more than I would pay to pull GBP from an ATM in the UK with a fee-free card)

I'm aware of the downside of GBP currency, especially the fact that they use no large denomination bills and the fact the 20GBP note will be replaced next year. I'm fine with storing a couple bricks of 10GPB notes if that's what it takes to get me where I want to be. I am prepared to be wrong about the exchange rate bottom, and I know this technically could be considered trying to "time the market" which is anathema here, but I am happy with my intent...just looking for advice on the methodology available to effect it.

AlohaJoe
Posts: 4838
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by AlohaJoe » Mon Mar 25, 2019 10:04 pm

TooOldForThis wrote:
Mon Mar 25, 2019 9:50 pm
What options are available to me to exchange USD for GBP in cash with little to not vig on the purchase?
There are many, many, many brokers that handle forex. Google forex and dozens of options will turn up if your current broker doesn't support forex. They are all pretty transparent about their fees.

You would just hold GBP in your brokerage account.

grilli
Posts: 14
Joined: Tue Apr 18, 2017 3:45 am

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by grilli » Mon Mar 25, 2019 10:08 pm

You can open a pound sterling bank account and then do electronic transfers into it when you think the rate is favorable. Google the ways you can open a sterling account.

I'm sure others will add that the market makers know all about Brexit, so what you are doing is speculation, not investment.

But if you spend a lot of money in the UK, there's no harm in keeping some of your savings in sterling as a hedge.

User avatar
whodidntante
Posts: 6534
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by whodidntante » Tue Mar 26, 2019 6:16 am

I would use futures. You will tie up a lot of cash with a direct forex.

Jack FFR1846
Posts: 10338
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by Jack FFR1846 » Tue Mar 26, 2019 6:22 am

You can do forex trading at TDAmeritrade. I know nothing about it other than it being offered.
Bogle: Smart Beta is stupid

ralph124cf
Posts: 2344
Joined: Tue Apr 01, 2014 11:41 am

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by ralph124cf » Tue Mar 26, 2019 7:20 am

grilli wrote:
Mon Mar 25, 2019 10:08 pm
You can open a pound sterling bank account and then do electronic transfers into it when you think the rate is favorable. Google the ways you can open a sterling account.

I'm sure others will add that the market makers know all about Brexit, so what you are doing is speculation, not investment.

But if you spend a lot of money in the UK, there's no harm in keeping some of your savings in sterling as a hedge.
To expand on this idea: If you do a lot of business in the UK, you probably live in or near a US money center, such as New York, Los Angeles, or Boston. These places have large international banks with branches in both your city and London. Open an account at your local branch of the international bank, and then when in London open a sterling account at another branch of the same bank. Transfer funds as needed between the currencies, but check the exchange rate carefully beforehand EACH TIME. Banks have been known to get sneaky with exchange rates and hidden fees. I use HSBC bank for this.

Keep in mind that you must file a report with the IRS each year if you have an account worth $10,000 or more in foreign currency. There is no tax due with this report, but there is a big penalty for failure to report.

Ralph

Valuethinker
Posts: 38954
Joined: Fri May 11, 2007 11:07 am

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by Valuethinker » Tue Mar 26, 2019 4:40 pm

TooOldForThis wrote:
Mon Mar 25, 2019 9:50 pm
Based on the recent activities in the UK around Brexit, I'm expecting a generational opportunity to take on pound sterling.

Note, this is not an investment request, I'm aware of several funds/ETF's that give exposure to the pound for my investment accounts. I'm talking about cold hard cash to be used over the next 15-20 years.

I spend enough time in the UK to want to protect against disadvantageous exchange rates once the EU/UK situation stabilizes and take advantage of the current instability. I have a target exchange in mind (roughly $1.16) and would like to begin amassing GBP as the current rate approaches historical lows close to $1.20. Eventually, I'm thinking about $10,000-$50,000 in cash with the latter probably sufficient to last me to end of life for my UK travels.

What options are available to me to exchange USD for GBP in cash with little to not vig on the purchase? (Certainly no more than I would pay to pull GBP from an ATM in the UK with a fee-free card)

I'm aware of the downside of GBP currency, especially the fact that they use no large denomination bills and the fact the 20GBP note will be replaced next year. I'm fine with storing a couple bricks of 10GPB notes if that's what it takes to get me where I want to be. I am prepared to be wrong about the exchange rate bottom, and I know this technically could be considered trying to "time the market" which is anathema here, but I am happy with my intent...just looking for advice on the methodology available to effect it.
DO NOT hold cash. Physical cash.

Cash is almost obsolete in the UK and I expect measures to restrict or abolish it in 10 to 20 years. Large cash transactions will almost assuredly be banned in a move to reduce tax evasion and money laundering. In any case notes change a lot more often than this. You'd have to fly into the UK with the notes, justify to Border Control where the money came from (they have the legal right to confiscate it if you cannot prove that it comes from clean sources) and then exchange it at the bank?

(We could of course have a socialist government shortly which imposes exchange controls or other measures, as the UK had from 1945 to 1979).

1. Open up a GBP bank account w a financial institution that offers same

2. Own gilts. Either straight UK government bonds (pay about 1.6 per cent yield on the 10 year) or indexed linked (pay about minus 1.6 per cent yield)

For my money I would own the FTSE250 index of smaller stocks which has much more GBP exposure than the FTSe100 (itself 84 per cent of the All Share).

3. Tim Martin the founder of JD Wetherspoons pub chain is a massive Brexit supporter (his pubs carry a free pro Brexit newspaper). I would hypothesize that his pubs are full of supporters likely to spend more on British beer and less on European wine (he has said he will stop importing it post departure). Thus earnings of JDW will rise and it is an excellent play on GB consumption. ;-)

THY4373
Posts: 1194
Joined: Thu Mar 22, 2012 3:17 pm

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by THY4373 » Tue Mar 26, 2019 4:59 pm

Valuethinker wrote:
Tue Mar 26, 2019 4:40 pm
DO NOT hold cash. Physical cash.

Cash is almost obsolete in the UK and I expect measures to restrict or abolish it in 10 to 20 years. Large cash transactions will almost assuredly be banned in a move to reduce tax evasion and money laundering. In any case notes change a lot more often than this. You'd have to fly into the UK with the notes, justify to Border Control where the money came from (they have the legal right to confiscate it if you cannot prove that it comes from clean sources) and then exchange it at the bank?
This is the most infuriating thing about holding sterling. I go there often enough and used to hold my bills but they change currency so often and when they do unlike the Euro and US dollar it is no longer legal tender. Should be easy enough to change at a bank but if you don't have an account there they won't do it in my experience (I got lucky once). It hasn't been a lot of money but it is a pain. I have disposed of my small amounts (10s of pounds) by donating them at museums and other places that ask for donations in UK. I figure they have an account with a bank and can convert them so at least it does some good. I know some folks who exchange them overseas where they don't know any better but that seems like passing the buck, eh quid to the next person.

halfnine
Posts: 981
Joined: Tue Dec 21, 2010 1:48 pm

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by halfnine » Tue Mar 26, 2019 6:21 pm

Couple of options OTOH:

1. Forex. Will have to pay overnight rates each night, though, which is probably somewhere around 1.5-2.0% now. If looking at short duration this might be acceptable.

2. Futures. The purchase price has the implied interest rate charge indicated above (I believe). The benefit would be the split tax treatment as STCG and LTCG (I believe).

3. Setup a UK bank account and use TransferWise or similar to minimize conversion fees. Without residency or an EU passport (for now) it is unlikely you will be able to set up a UK bank account, though

4. Setup a TransferWise Borderless account. Again, you are probably not eligible.

5. Purchase FXB which has an ER of 0.4% or so

6. Purchase a UK gilt

7. Use a large international bank that has a GBP currency account. Probably looking at 1% fees each way and not sure about deposit insurance.

8. If you already have a UK brokerage (unlikely unless have a previous retirement account from the UK) sell off stock fund in UK brokerage and buy gilts. Simultaneous sell of US bonds and re-buy similar stock fund at US brokerage.

9. Setup and fund an IB account and convert to GBP?

Topic Author
TooOldForThis
Posts: 19
Joined: Fri Mar 01, 2019 3:18 pm

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by TooOldForThis » Tue Mar 26, 2019 7:11 pm

Thanks for all the fantastic ideas. I had an irrational fear that I'd be mercilessly mocked for this one. 8-) Appreciate being taken seriously. Will investigate several of these options.

pward
Posts: 393
Joined: Fri Dec 21, 2018 8:18 pm

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by pward » Tue Mar 26, 2019 7:20 pm

You can buy U.K. bonds, same thing only with interest.

riverguy
Posts: 496
Joined: Sun May 23, 2010 10:33 pm

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by riverguy » Tue Mar 26, 2019 7:37 pm

Holding currency without using leverage seems like a waste of time.

Valuethinker
Posts: 38954
Joined: Fri May 11, 2007 11:07 am

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by Valuethinker » Wed Mar 27, 2019 3:24 pm

THY4373 wrote:
Tue Mar 26, 2019 4:59 pm
Valuethinker wrote:
Tue Mar 26, 2019 4:40 pm
DO NOT hold cash. Physical cash.

Cash is almost obsolete in the UK and I expect measures to restrict or abolish it in 10 to 20 years. Large cash transactions will almost assuredly be banned in a move to reduce tax evasion and money laundering. In any case notes change a lot more often than this. You'd have to fly into the UK with the notes, justify to Border Control where the money came from (they have the legal right to confiscate it if you cannot prove that it comes from clean sources) and then exchange it at the bank?
This is the most infuriating thing about holding sterling. I go there often enough and used to hold my bills but they change currency so often and when they do unlike the Euro and US dollar it is no longer legal tender. Should be easy enough to change at a bank but if you don't have an account there they won't do it in my experience (I got lucky once). It hasn't been a lot of money but it is a pain. I have disposed of my small amounts (10s of pounds) by donating them at museums and other places that ask for donations in UK. I figure they have an account with a bank and can convert them so at least it does some good. I know some folks who exchange them overseas where they don't know any better but that seems like passing the buck, eh quid to the next person.
We have good forgers and thus we change bills a lot?

The switch to plastic notes was recent. Our Governor of the Bank of England Mark Carney is Canadian and they had already switched. The bills are harder to forge and last 20x as long.

The bimetallic pound and 2 pound coins are again to combat the very common forgeries.

So you may just have been unlucky in terms of big switchover in the last 2 to 3 years.

User avatar
sperry8
Posts: 1854
Joined: Sat Mar 29, 2008 9:25 pm
Location: Miami FL

Re: (Potential) Once in a generation foreign currency opportunity. How best to effect it?

Post by sperry8 » Thu Mar 28, 2019 9:21 am

halfnine wrote:
Tue Mar 26, 2019 6:21 pm

3. Setup a UK bank account and use TransferWise or similar to minimize conversion fees. Without residency or an EU passport (for now) it is unlikely you will be able to set up a UK bank account, though
Incorrect. If you have enough assets to qualify for an HSBC Premier account in the USA you can open an HSBC UK bank account and hold UK Sterling. Easy transfers back/forth. You will need to be in the UK to open the account once your HSBC USA account is open - but it's just a one time event. No EU/UK passport or residency required.
BH contest results: 2018: #150 of 493 | 2017: #516 of 647 | 2016: #121 of 610 | 2015: #18 of 552 | 2014: #225 of 503 | 2013: #383 of 433 | 2012: #366 of 410 | 2011: #113 of 369 | 2010: #53 of 282

Post Reply