Manage Multi Currency Investments Effectively

By Simson Sanaphay

Australians travel more than ever before. According to information from the ABS, some 10.5 million Australians travelled overseas last year, up almost 7 per cent on 2016; our children study overseas; we have assets spread across the world; and we look to take our businesses global in search of new markets.

We are all becoming global citizens, but the opportunities provided by our cosmopolitan lifestyles and a shrinking world throw up new challenges. The costs of trade and travel are falling, but currency risks not only remain, they are becoming more prominent as the global economy becomes more volatile. An overseas investment or even a holiday can rapidly run over budget if the target currency appreciates significantly.

There are a number of ways to mitigate currency risk. The first, if we are looking at investing, is to add geographic diversity to your portfolio. With low cash rates and high property prices in Australia, global opportunities could drive higher yield. If you have overseas costs such as setting up an office abroad, or paying tuition for a daughter who is going to university in the United States, it makes sense to have assets which will pay dividends in your target currency.

The second is to pre-position cash in your target currency. Maybe you are thinking of taking a stake in a production facility in Europe to aid distribution: moving some cash out of Australian dollars ahead of time can mitigate the risk of the target currency moving against you at the last moment. It also makes it easier to move swiftly when a buying opportunity arises.

The third is to find a banking solution that minimises the cost of foreign exchange transactions, especially if you are making regular payments such as overseas tuition fees, maintaining a second home, or maybe helping relatives with a mortgage. Standard solutions such as telegraphic transfers are often slow and can include extra fees hidden behind wide exchange rate spreads.

These steps are becoming simpler. A new breed of consumer multi-currency accounts such as the Citi Global Currency Account have not only made moving cash between currencies cheaper, they have also made it simpler to maintain oversight of your overall cash position by totalling your holdings on a single page.

These new accounts allow investors to repatriate the dividends of their overseas portfolios to Australia without having to pay the costs of foreign exchange transactions. They are also a more cost-effective solution to moving foreign currency with transparent exchange rates. Citi’s account also has the added benefit that a debit card can be easily switched between different currencies, making day-to-day budgeting – and preparing travel expenses – significantly more straightforward.

Whether you travel for business or pleasure, currency transfer risks can prove costly if they are not managed carefully. Hedging your exposure with geographic diversification of your assets, pre-positioning currency for expected outlays and minimising the actual transfer costs themselves provide the key to successful risk management.

Simson is a strategist for Citi's wealth management business.