Everything You Need to Know About Foreign Exchange While Studying Abroad
When you are about to begin your study abroad journey, there will be a lot of things you will have to do for the first time in your life. One of these things is foreign exchange, commonly known as forex. When you are travelling to a different country you need to convert your local currency into the currency of your host country. It may seem like a pretty straightforward process that you give your currency and get it changed to the currency of your desired country. But there are a lot of factors that influence forex.
Each country has its own currency, and the value of these currencies can change due to various factors such as economic conditions, trade imbalances, interest rates, and market sentiments. These factors work together to determine the value of one country’s currency compared to another. For instance, 1 Vietnamese dong equals 34.79 Indian Rupees (INR), and 1 US dollar is worth 82.06 INR. This means there is always a possibility of experiencing a loss in currency value during the forex trading process, regardless of the method used.
Exchange rates, fees and charges, currency options, and regulatory compliances are few of the factors that affect foreign exchange. Having an understanding of these elements is necessary for making informed decisions and ensuring a smooth forex process during your study abroad journey. In the article, we will dive into everything a student needs to know about foreign exchange. We will explore factors like exchange rates, and shed light on the fees and charges, discuss different methods of forex and their suitability for specific purposes.
What is foreign exchange?
Foreign exchange or forex refers to converting one currency into another for various reasons, such as travel, education, or business. When studying abroad, students will need to convert Indian Rupees into the currency of their host country. The exchange rate determines the value of one currency relative to another. Knowing the fundamentals of foreign exchange, key terms and the factors that influence exchange rates is essential.
Key terms you should know before doing foreign exchange
- Remittance: The transfer of money from a person working abroad to their family or individuals in their home country or the transfer of money from their family in their home country to the person working or studying abroad.
- Exchange Rate Margin: The difference between the official exchange rate and the rate offered by financial institutions for currency conversions, representing their profit margin.
- SWIFT Code: A unique code used to identify specific banks or financial institutions worldwide when conducting international wire transfers.
- Foreign Transaction Fees: Fees charged by banks or forex card issuers for currency conversion and transactions in foreign currency.
- Floating Exchange Rate: A system where a currency’s value is determined by market forces of supply and demand, without government intervention.
By familiarizing yourself with the key terms, you can confidently navigate the complex world of forex.
Different modes of foreign exchange
1. Forex cards: Forex cards, also known as travel cards, are one of the most popular options used by students studying abroad. These prepaid cards are specially designed for travelling abroad and they come with several advantages, including:
- Forex cards are accepted at most places, allowing students to make payments at various shops, restaurants and online platforms without having to carry large amounts of cash.
- They are available in a lot of currencies, allowing students to load up their cards with their currency of choice. This helps them in avoiding currency conversion fees each time they make a transaction.
- Forex cards, just like any other debit or credit card, are equipped with PINs and EMV chips. This makes them secure and less vulnerable to fraud than carrying cash around. On top of that, most cards offer options to block them immediately if stolen or lost, ensuring the safety of the funds.
- One of the most essential advantages of forex cards is the ability to lock in the exchange rates when loading the card. This helps students avoid exchange rate fluctuations and plan their expenses better.
2. Wire transfer: They are primarily used for large sums of money, such as paying tuition fees or covering other bigger expenses like accommodation. Here are some benefits of wire transfer:
- Many universities and colleges abroad require international students to pay their fees through wire transfers. These transfers ensure that the money is directly transferred to the university’s account. This streamlined process not only ensures the secure and efficient transfer of funds but also facilitates a smooth and hassle-free registration process. If you need to transfer a large amount of funds, such as renting a property or purchasing a vehicle, wire transfers are a reliable option. They offer a secure and transparent method of transferring large sums overseas.
- Wire transfers involve transferring money from your bank account in India to your overseas bank account. This process ensures that the funds are directly deposited into your bank account, providing hassle-free access to your expenses.
3. Cash: While carrying cash overseas should be limited for security reasons, having a small amount of local currency is still useful. Here are some benefits of having cash in hand:
- Cash is helpful for initial expenses upon arrival, such as transportation from the airport, small purchases or in case of an emergency.
- If you plan to visit remote areas or the countryside with limited technology, having some cash can come in handy.
- Occasionally, the technology will fail you, the card reader won’t work, or it is just a cash-only store, then having cash can be your saviour.
Factors students need to consider before foreign exchange
Before doing foreign exchange, there are a few factors a student needs to take into consideration to have a smooth and cost-effective transaction. Here are some factors to consider:
1. Exchange rates
Exchange rates are subject to fluctuation, and it’s vital to monitor them before making currency conversions. Economic factors, political stability, and market conditions influence exchange rates. Students can monitor the rates over a time period and consider converting them when exchange rates are low.
2. Fees and charges
Compare the fees and charges with different forex service providers, including banks, money transfer services and cards. Consider transaction fees, currency conversion charges, reload fees, ATM withdrawal limits and fees, and other costs involved. Choose the option that offers the most competitive rates and reasonable fees.
3. Security and fraud protection
Make sure the service provider you choose has robust security measures in place to protect your money. Look for features such as EMV chips, PIN protection, the ability to block or cancel cards in case of theft or loss.
4. Convenience and accessibility
Consider the convenience and accessibility of the Forex service you choose. The service should be available in your country, the host country and the location where you will be studying. Keep in mind factors such as the ease of reloading funding, availability of ATMs, acceptance at merchants and customer support.
5. Regulatory compliance
Make sure that the forex service provider you are choosing operates within the regulatory framework and complies with the laws and regulations of your country and the host country. Verify that they are authorised and licensed by the appropriate regulatory authorities to provide forex services.
6. Customers reviews and recommendations
Research customers reviews, ratings and recommendations for different forex services providers. Read about other student’s experiences who are still using or having used their services in the past to gain a better understanding into the reliability, efficiency and customer support offered by each provider.
7. Support for emergency situations
Consider how a forex service provider handles emergency situations. Determine if they offer 24×7 customer support, assistance in case of stolen or lost cards and quick resolution of any issues that may arise during study abroad.
8. Seeking professional advice
When dealing with a significant amount of money for the first time, seeking help from a financial advisor can come in handy. They can provide guidance tailored to your needs and help you in making an informed decision.
Understanding TCS changes and their impact on students studying abroad
The Ministry of Finance has announced the implementation of new Tax Collection at Source (TCS) rate policies. Originally scheduled for July 1, 2023, the new TCS rates will now take effect on October 1, 2023. These changes are part of the 2023 Budget plan and primarily impact payments made under the Liberalised Remittance Scheme (LRS) and overseas tour packages.
Under the previous LRS rules, individuals could make up to $250,000 in one financial year for various purposes like donations, travel, and studying abroad. However, the revised rules introduce TCS rates on all foreign remittance transactions. The new rates include:
- A 20% TDS rate on payments over Rs. 7 lakhs made via international credit or debit cards, previously 5%. This change was initially announced on May 19, 2023, and is postponed allowing banks and card networks to implement necessary IT solutions.
- A Rs. 7-lakh threshold for TCS payments under LRS for each individual per financial year, exempting transactions up to this amount from TCS deductions. If the threshold is exceeded, the TCS rates vary depending on the purpose, ranging from 0.5% for education loans to 20% for other purposes.
- The effective date of these new TCS rates has been shifted from July 1, 2023, to October 1, 2023, giving parents sending money to children studying abroad some extra time to avoid higher TCS charges.
Forex is an important part of a study abroad journey. By having basic knowledge of exchange rates, keeping in mind fees and charges, exploring different currency options, and complying with regulations, can help students navigate the complexities of forex with ease. Be proactive in monitoring your exchange rates, plan your transactions strategically, considering the new TCS rate changes and seek professional advice when necessary. One thing to keep in mind is that forex is not just about converting currency, it’s about optimising the value of your funds and managing your finances effectively during time abroad.
At Collegepond we understand the value of our student’s money, so we make sure you get your money’s worth with our Forex services. Talk to our expert now!