Reply to: Getting paid in USD

[Freamon]

How am I hedged if I do that? To hedge my FX risk i'd have to lock in a rate with a forward contract or something like that.

If I do as you say, i've just got half the dollar exposure don't I? If the dollar tanks, I won't necessarily offset my loss by what i've got in GBP.

Not sure I want to hedge my FX risk because surely the dollar must strengthen eventually and I don't need the cash for a few years. I'd want to get rid of inflation risk I suppose.

Sorry if I misunderstood you.

I'm assuming you are planning to convert it all into GBP eventually. By converting half now and half later, you are "splitting the difference" in whatever FX losses (or gains) you might have made by holding it all in dollars until you want to spend the GBP, or converting it all into GBP now. As you say, this is not the same thing as locking in today's rate (if you want to do that, you could just convert it all now, but you might have got a better rate if you had waited...)

For example, if you have $10k to convert overall and the exchange rate today is $2, and by the time you need to spend it all, it falls to $1.50.

By converting it all now, you get £5000.

By converting it all the future point of spending, you get £6666.

But there is of course a risk that the exchange rate could move against you in this period. If it moves the other way, to $3, you would only get £3333.

You are, in effect, exposed to a potential £3,333 loss (the difference between the best and worst outcomes).

Assume the rate today is $2 and you guess there's a roughly equal risk of it moving up to $3 or down to $1.50. You don't know which way it is going to move, but you want to balance the risks of losing or winning over the period. You want to get the average exchange rate between now and the point of spending.

So the way to do this is to convert half now, locking in £2,500. Then convert the rest at the end, getting an additional £3,333 or £1,666, for a total of either £5,833 or £4,166. You've halved your exposure from £3,333 down to £1,666.

[HairyArsedBloke]

I forgot you are not in the UK.

In my case I charge in USD and have a USD account in <<offshore tax haven with US & UK compatible banking laws>>; my fee's are wired there without problem.

Charging septics AUD would be nice, but I don't give you merde chance of getting them to do it.

I don't know about Aussie banks, but I suspect that the would be able to advise you on how to accept USD. I presume that you'll invoice monthly/weekly - send you punters an invoice with wire instructions to your AUD account - your bank will do the conversion from USD to AUD. Most spetics should be able to understand how to do their bit; wire transfers are dead easy.

[d000hg]

Sometimes you get some educated answers. People in the UK sometimes work abroad too.

Working abroad isn't the same as living abroad though, who knows what the rules are... and you don't list your location or mention it in your post. Maybe Oz, or maybe that's just a nickname or where you were born... too many things to guess at.

[Jog On]

I can think of worse currencies to be getting paid in right now. All this EUR stuff and the Korean 'sabre rattling' etc is pushing the USD up value wise. Interest wise you could convert some into AUD - or hold some carry trades AUD is looking at bit bearish at the mo, although in the long term I think it's still getting stronger and has a very good interest rate.

Do what your username says and go Aussie long!

[aussielong]

What are you doing on a UK forum asking questions?

Sometimes you get some educated answers. People in the UK sometimes work abroad too.

[d000hg]

What are you doing on a UK forum asking questions?

[aussielong]

I was warned that recent/future changes might mean that if you're on the FRS, this might not matter. I never looked into it in detail so that may not be the case but simply saying "it's USD" doesn't automatically mean you escape... check with your accountant.

What is FRS? I am not living in the UK and have not done for 10 years, I will not be converting into GBP. Why would I pay VAT?

Factor it in sure but coming with your rate and adding 3-5%... why not just figure out what rate you want and stop quibbling over small change. This is part of business.

I could do that. But i've found putting a quote in that is broken down into a bit of detail has seemed to work better for me in the past. You can quite easily go in too high and price yourself out of the market, and if you don't know the local market how do you know where to go in at.

[d000hg]

VAT..? I'm not dealing in GBP.

I was warned that recent/future changes might mean that if you're on the FRS, this might not matter. I never looked into it in detail so that may not be the case but simply saying "it's USD" doesn't automatically mean you escape... check with your accountant.

If you are holding USD and you intend on converting back to a stronger ccy you want compensation for the cost of carry. That will be factored into the rate you ask for. Otherwise you lose out.

Factor it in sure but coming with your rate and adding 3-5%... why not just figure out what rate you want and stop quibbling over small change. This is part of business.

[aussielong]

I'd love to see a corporation when I ask them to pay my $700/day into my Paypal account.

Also you can have USD paid directly into a sterling account through regular wire transfer, one bank or the other (probably receiving one) will do a conversion automatically. Of course they will use a rate that is not optimal but last time I checked this was something like 3%. Also you can have a USD and a GBP account, and move money between the two as you see fit.
Since GBP/USD can fluctuate that much over a week I don't really see you have cause for asking more. Just set your rate as high as you can as you would normally. If that doesn't give you enough back, don't accept.

You should be more worried about VAT, I'd say.

VAT..? I'm not dealing in GBP. If you are holding USD and you intend on converting back to a stronger ccy you want compensation for the cost of carry. That will be factored into the rate you ask for. Otherwise you lose out.

[d000hg]

You might have to swallow the costs too, but even paypal will only cost you about 5% so 10% is chancing it; try it anyway

I'd love to see a corporation when I ask them to pay my $700/day into my Paypal account.

Also you can have USD paid directly into a sterling account through regular wire transfer, one bank or the other (probably receiving one) will do a conversion automatically. Of course they will use a rate that is not optimal but last time I checked this was something like 3%. Also you can have a USD and a GBP account, and move money between the two as you see fit.
Since GBP/USD can fluctuate that much over a week I don't really see you have cause for asking more. Just set your rate as high as you can as you would normally. If that doesn't give you enough back, don't accept.

You should be more worried about VAT, I'd say.

[aussielong]

If you don't want to bet on exchange rate fluctuations, then perhaps you should convert half your earnings into GBP (or whatever your local currency is) as you receive them. Then if the USD goes up or down before you need access to the money, you are hedged either way.

How am I hedged if I do that? To hedge my FX risk i'd have to lock in a rate with a forward contract or something like that.

If I do as you say, i've just got half the dollar exposure don't I? If the dollar tanks, I won't necessarily offset my loss by what i've got in GBP.

Not sure I want to hedge my FX risk because surely the dollar must strengthen eventually and I don't need the cash for a few years. I'd want to get rid of inflation risk I suppose.

Sorry if I misunderstood you.

[Freamon]

What do you mean by costs? Do you mean i'd have to cross the spread often? I wouldn't do that - I expect the dollar will strengthen eventually and I don't need the cash right now.

You're right about other ccy's not giving interest either so maybe there is no issue.

If you don't want to bet on exchange rate fluctuations, then perhaps you should convert half your earnings into GBP (or whatever your local currency is) as you receive them. Then if the USD goes up or down before you need access to the money, you are hedged either way.

[aussielong]

You might have to swallow the costs too, but even paypal will only cost you about 5% so 10% is chancing it; try it anyway.

What do you mean by costs? Do you mean i'd have to cross the spread often? I wouldn't do that - I expect the dollar will strengthen eventually and I don't need the cash right now.

You're right about other ccy's not giving interest either so maybe there is no issue.

[HairyArsedBloke]

I might be getting paid in USD soon. I can see a few downsides - no interest in USD denominated accounts for instance.

What would you add on to compensate for getting paid in USD? 10%?

Are there any upsides to getting paid in USD as opposed to stronger currencies?

The septics are incapable of understanding the concept of paying anyone in anything other than USD; don't even try.

You might have to swallow the costs too, but even paypal will only cost you about 5% so 10% is chancing it; try it anyway.

As the fury friend botherer said, what account pays interest these days. As for USD getting stronger; I can say no more.

[AtW]

no interest in USD denominated accounts for instance.

And who is paying meaningful interest without locking in for long time in any decent currency?

USD seems to be on the up again - euro bail outs and all that.