Does anyone manage currency risk?

[NotEnoughHeat]

I have wondered this a lot,

businesses who deal with foreign currencies tend to purchase assets to balance out exchange rate risk by shorting the foreign currency. At least this is my understanding. If a company had assets in a foreign they would short sell the foreign currency so that if the exchange rate of the foreign currency to the domestic one dropped they would stand to lose nothing (but also gain nothing if the exchange rate rose).

So my question is, do any of you do this when traveling abroad?

I'm concerned about how you would go about adjusting for wins and losses. I'd imagine you might want to increase or decrease your short position depending on the situation but making too many trades might become expensive and because of timing it might not always be practical.

Anyways, these are just my initial thoughts.

I would like to hear whether anyone has considered this and how exactly they put this to practice.

[Freightman]

I normally go to the US about 3times per year (from Canada). For various reasons I only went once last year. I do keep US funds in a USD account. I don't want to be paying bank commissions every time to convert back and forth. At this point in time, currency fluctuations have created a large difference between the value if the 2 currencies. I have made good dollars on my USD.

At such time as there is a bounce back in the worldwide price of oil, I may convert some of my USD to CAD. An equitable, at the time deal between me and another AP, had me exchange 5K Usd to the equivalent CAD amount, based on the Bank of Canada rate in effect on that date. He made out like a bandit, so to speak - who knew. So, the short answer is -yes - manage your currencies.

As far as maintaining records go, since I only use USD dollars besides CAD, is to enter my results at par, then adjust at such time as I convert USD back to CAD.

[NotEnoughHeat]

To avoid those large % hidden fees (or bad rates in many cases) I suggest you look up Norbert's Gambit. If you ever exchange mid-4-figures and up (which I'd imagine would be common for many counters) it'll be worthwhile. Basically it involves converting your currency by trading a dual listed security (currency indexes are preferred) in both currencies.

[GeorgeJung]

The situation you are stating, in which a business hedges its activities in foreign currency operations, can not even closely match the circumstances an AP faces.
First off, unless you are exchanging several hundreds of thousands of dollars every year, the hedging against currency risk will cost you alot more than you gain. Especially if you travel all over the world and thus need to hedge against many currencies.
Fortunately this is irrelevant because of the following.
Because you are a private person and not a business, you have to go down to the bank or other financial institution and exchange your currency at ridiculously bad exchange rates. The fee is in the decreased exchange rate which is 2 - 5 % lower than the actual rate. Thus you pay 2 - 5 % of your amount at the initial exchange and again when you exchange back to your local currency. This enormes spread in the exchange rates for private persons, makes it almost impossible to hedge against, since you lose such a large chunk off the top.

Kind Regards
GeorgeJung

[NotEnoughHeat]

I'm not quite sure I see the point you're trying to get at. Even if you decide to exchange your money the traditional way (which I'd advise against, see post #3) I don't see what that would have to do with hedging for exchange fluctuations. You're not hedging for the bad exchange rate banks/money changers give, it doesn't really even make sense to 'hedge' for a certainty. Just because you already take a hit from one thing doesn't mean you shouldn't try to protect yourself from taking a hit from another thing. It's like saying there's no point to basic strategy when the house has an edge anyways.