Students who are studying abroad have worries about the Indian rupee’s decline in value relative to the US dollar. Students, both current and prospective ones who intend to pursue higher education overseas, are being impacted by the rupee’s volatility. Students must pay for living expenses in addition to tuition, and the fluctuating exchange rates can throw off their entire budget.
Many parents are concerned about the rupee’s decline since it implies they would have to pay more for their children’s international education in order to offset the currency risk. Take into account the following: On December 20, 2011, $1 was equivalent to Rs 52.77, and on June 14, 2022, it fell to an all-time low of Rs 78. Parents’ intentions to send their children to college abroad would be impacted by the rupee’s decline in value since it will increase the cost of the students’ living and tuition expenditures. What can students do in such a situation to lower the expense of studying abroad?
Second, while deciding between loans with fixed or variable interest rates, students must exercise careful thought. Unless they are very knowledgeable about tracking capital markets and their influence on their variable interest rate, students must pick fixed-rate interest loans rather than variable-interest loans. Even then, having a strategy for changing their variable rate is still necessary. Students should avoid spending their valuable study time getting caught up in variable rates and their swings if they desire peace of mind and predictable monthly payments. When compared to a fixed-rate program, a variable-rate product may initially provide a cheaper interest rate, but over the course of the loan, the interest rate may grow significantly.
Additionally, parents who want to send their children abroad should think about investing in foreign markets as it avoids the danger of exchange rate fluctuations. Some customers might use overseas investment as a buffer against volatile currency swings if they have goals in foreign currencies, such paying for international school costs.
Students are advised to conduct in-depth research on the best education loan provider on the market if they have already chosen their school. Students should take into account colleges that offer a comprehensive and transparent service style.
How To Protect Against Currency Volatility And Manage it
Get the greatest prices by using the Rate Lock-in Feature
You must keep a close eye on currency conversion rates if you intend to send your tuition payments to your institution or buy a forex card for travel within the next few days. Since currency values are so unpredictable right now, it becomes even more crucial. You may take advantage of a few FinTechs that provide 24 hour booking and pricing lock-in services. When the prices seem appealing, book them. You may acquire the best foreign exchange rates during a certain window using the rate lock-in option.
Create a Foreign Account
Additionally, a foreign currency account in the accepted payment currency may be opened. Since these accounts are opened at foreign exchange rates, such rates would be the hedged rates. An account must be opened, and most colleges have a partnership with a local bank for the creation of student accounts. Identification documents such a passport, visa, student ID card, address evidence, etc. are necessary. However, it is important to realize that foreign currency deposits provide almost little interest income.
Students may protect themselves against currency losses by carefully weighing their alternatives and selecting the best tool for their needs while taking into account their budgetary restrictions, date of trip, and length of stay abroad.
Hedging Interest Rates On Money Transfers through forward Contracts
The greatest tools for future uncertainty hedging are forward contracts. Usually, high-value transactions involving money transfers take place, particularly when they relate to things like tuition. By entering a forward contract, one may hedge foreign exchange rates and safeguard oneself against rate volatility. A forward contract is a contract you have with the bank that enables you to transfer money at a certain future date (up to 12 months in the future) at an exchange rate that has been decided upon today.
As a result, using a forward contract, you can predict the exchange rate at the time of the transaction. However, there are premiums associated with forward contracts that vary depending on how long they are; as a result, you must evaluate the premium provided by your bank. Additionally, weigh the interest income from holding INR in the bank against the cost of the forward contract before making a choice. The banks are able to book the forward contracts. To learn more about the premium on forward contracts, contact your personal bank.
Get Prepaid Cards with International Currencies
When students travel, the easiest way to handle currency hedging is to buy prepaid cards with foreign currency denominations, or “forex cards.” Similar to a near-term forward contract with no premium is a forex card. It may be pre-loaded with one or more foreign currencies and used to conduct business or make payments without difficulty.
A forex card performs the same functions as any other debit or credit card. However, they are pre-loaded with foreign currency at an agreed-upon rate so that the rate won’t change in line with market rates. Contrary to rupee-denominated cards, which prohibit users from knowing the exchange rate at which INR will be changed into a foreign currency while making a purchase at a merchant location, it eliminates the rate volatility aspect.
People who practically have the full corpus set aside to pay for their children’s international education may be able to find an alternate solution to reducing the dangers associated with currency depreciation. They can invest the full amount in assets in the nation where your children are/will attend school by repatriating it there.
When the tuition and other fees are due, you can redeem your investments, and you can put the leftover money in a safe fund. Return on Capital should not be your main criterion for selecting these sorts of ETFs. Because there is no room for error and the aim is difficult and immediate, this is the case. You must thus only invest this fund in the assets with the best ratings and the lowest volatility.