A sharp decline in the value of the rupee against the US dollar has caught many people off guard. The INR which was around Rs 63.38 on January 1, 2018 against the USD has significantly depreciated. It fell to an all time low of Rs 70.08 in early trade today. The rupee is down nearly 10% in 2018 and has fallen 2.4% or Rs 1.64 since the beginning of this month.
Not just businesses get affected by currency rate movement, it also impacts individuals like overseas workers, NRIs, people dependant on overseas remittances, students studying abroad, patients goings for medical treatment overseas and tourists. While some gain from it, others lose. Here's how you should preserve your gains and how you should minimize your losses, depending on which side you fall.
What should the gainers do?
If you're an overseas worker earning in USD, or any other currency which has gained against INR, you should lock in your gains. If you have made investment in India in USD through FCNR (Foreign Currency Non-Repatriable) account, and if your deposits are maturing, then you should convert your foreign exchange savings into INR. "Anyone residing outside India, be it NRI or overseas workers, who have invested in India will make handsome gains as the rupee depreciation will fetch them incremental exchange rate when they withdraw the money," says Achin Goel, Head of Wealth Management and Financial Planning, Bonanza Portfolio.
Rupee has already seen a sharp decline of more than 8% which is unlikely to be matched in near future even if it declines further. Therefore, you can use this occasion to covert 50-60% of your savings into INR. If there is another fall in future, you can covert some more of your savings into INR.
What should the losers do?
Those who have to make immediate expenses in USD are the losers. "Anyone who needs to shell out money in USD be it student, tourist, importer, patient will have to shell out their hard earned money to manage expenses outside the country," says Goel.
Here is how they can minimise their losses:
Students, who are already studying abroad or are planning to go abroad, are the worst affected. First of all their cost of living goes up significantly as they have to arrange more rupees for the same amount of USD expense abroad. Not only the new students but also the existing students will see significant spike in fees of their upcoming semesters. "For education fees of $100,000, if student had to shell out INR 65,00,000 sometime back, they now need to shell out approx INR 68,50,000," says Goel.
To prevent a similar situation in future, those who know their dollar expenses can hedge the rate today by buying the INR/USD currency future, says Goel. "If people know their dollar expenses or foreign currency expenses in advance, they can hedge the rate today by buying the INR/USD currency future and using contract expiry which match their requirement date. In this manner any further depreciation, student can gain in futures market and offset the incremental expenses," says Goel.
Students going abroad can use their bank account to manage the currency risk for their future education fee payment. Rather than waiting for the due time of payment of fees and being forced to face the prevailing exchange rate of that time, parents can instead transfer the money in installments to bank account of students whenever they find the USD taking a temporary dip. There are other ways also by which students can cope up with increased cost of education. "The students aspiring to study abroad should first look for the scholarships and part-time jobs to balance their fee and expenses. They can also opt for suitable education loans which increase the loan amount per semester with the increase in the semester fees. ISIC cards, specifically made for the students, can be availed when traveling and shopping at the stores," advises Rachit Chawla, CEO of Finway Capital.
People who are planning to go overseas for vacations are also hugely affected by the fall in currency value. "Though the impact of the weaker rupee is evident in these groups, a more strategic spending can reduce the impact on their expenditure. For instance, to cut the foreign travel expenses, travelers can book a tour in advance and pay early," says Chawla of Finway Capital. While the cost can't be brought down, you can obviously ensure that there is no further cost escalation. "The forex component covers accommodation, meals, sight-seeing, other than ticket bookings. Many prefer paying the forex component later, but paying the complete package in advance can definitely save costs. Carrying pre-paid travel cards will also help." adds Chawla.
As far as the personal expenses go, the situation of those who go abroad for medical treatment is similar to travellers. But, the expenses get amplified if there is no insurance to cover overseas medical treatment. "Going abroad for medical treatment again requires a hefty amount of money. Opting for health and medical insurance is an intelligent move," says Chawla.
While it is not possible to prepare for the fall in the value of rupee, one can make sure that their expenses do not go up by locking funds at current exchange rate. "Instead leaving buying of FX at the last minute, students/ people going aboard, once they get their visa, should look to buy FX / load FX on their travel card whenever the dollar dips," says Salil Datar, ED & CEO, Essel Finance Forex.