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 Dear
Dr. Don,
I am quite concerned (bearish) about the falling
value of the dollar. What is the best way to protect
myself? For instance, I may want to convert some
savings into a foreign currency, like the euro.
-- F.X. Effects
 Dear
F.X.,
You're not alone. The dollar/euro relationship started out with 1 euro equal to $1.18 in 1999. The euro
hit a low of $0.82 in October 2000. But as of this writing, a falling dollar has boosted the euro to about $1.46.
Don't convert your currency at an airport booth. Instead, open an EverBank account, a smart choice for U.S.
consumers who want to convert some of their dollar-based deposits into a foreign currency.
EverBank allows you to hold nondollar-denominated deposits in a bank account insured by the Federal Deposit
Insurance Corp. You can even expand beyond euro-denominated deposits and diversify across currencies.
However, there is a potential downside in the investment. The FDIC insurance protects you from bank failure,
not currency losses. So, the risk comes in repatriating your foreign currency into U.S. dollars. If the euro
declines, you will take a hit.
Minimum deposit levels vary based
on whether you open a money market account ($2,500)
or a CD ($10,000). The money market account doesn't
pay interest on the minimum balance. That means
you're losing interest income but hoping the currency
movement will outperform the lost interest income.
Dear
Dr. Don,
I'm traveling to Ireland next June. With the dollar falling like a rock, I would like to convert most of my dollars
into euros. Is this a good idea? Are there any money market accounts based on the euro?
-- Mike Monetary
Dear
Mike,
No tree grows to the sun. The dollar isn't going to lose all its value against the euro. I can't tell you where
the dollar/euro exchange rate will be next June, but it does make sense to hedge your foreign currency exposure
by converting some money to euros.
I like the EverBank approach that I discuss in the letter above. Talk to the bank about converting your dollars to
euros, but make sure you'll be able to withdraw them as euros next summer. You wouldn't want to be forced to convert
to dollars to get the money out of the account only to have to then convert back to euros.
An earlier Dr. Don column, "Depositing euros in a U.S. bank,"
discusses the ability to withdraw the
funds from EverBank without converting. However, make sure to confirm with the bank that you will have that option.
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