**Disclaimer: The following information reflects the analysis and research of The Lady V, who fully and completely acknowledges the dork inside her.**
You learn a lot when you live outside your home country of the United States. For example, you learn that Kraft Macaroni and Cheese is not nearly as ubiquitous as KFC. You learn to drive on the left side of the road. You learn how to differentiate between a power outage and when you’ve run out of pre-paid electricity. But most importantly, you learn to pay attention to currency exchange rates.
Unfortunately for me, the U.S. dollar has been dropping in value against the South African rand (which is what the Lesotho maluti is pegged to) and I am paid in U.S. dollars. This means that my salary gets deposited into my U.S. bank account in U.S. dollars and, in order to spend my money in Lesotho, I have to withdraw in rand. Every time the dollar depreciates against the rand, I essentially get a pay cut. For example, when I first arrived, I could withdraw R4000 and would see $403 deducted from my account. Today, I see $510 deducted from my account.
So, in light of the diminishing value of my salary in Lesotho, I’ve been searching for ways to minimize this pain. Some organizations pay their expats a sort of monthly allowance to offset this risk, but of course, mine does not. And, sadly, I have neither the means nor knowledge to participate in arbitrage or true foreign exchange hedging (my MBA international finance professors would be ashamed, I know). In my search for alternative solutions, I began by looking at exchange rate patterns to determine which day of the week would yield the best rate. The chart below shows the ZAR to USD interbank conversion rate over the past three months and the pink boxes indicate weekends – Friday through Monday. Turns out, the best days to exchange or withdraw money are Tuesdays and Wednesdays. You can tell from the chart that the rate tends to go against the dollar Fridays-Mondays.
Here’s what that means in real-life terms. The maximum per transaction amount that I’m allowed here is R4000. Let’s say I withdrew R4000 every Sunday for the past three months. According to the exchange rate on those days, I would have seen $6,223 deducted from my account. But if I had taken the R4000 out on Wednesdays instead, I would only have seen $6,082 removed. And this in a country whose currency is relatively stable! Now, I should add that I tried this analysis for the first six months of the year, but the exchange rate has dropped so much since January, that it didn’t seem to be reflective of my current needs. Then again, maybe this theory doesn’t bear out in the long run and it all just evens out in the end. But I like the idea of my theory — so I’ll be keeping an eye on this trend in the coming months.
I gladly welcome any other ideas of how I might hedge my FX risk — anyone??
