When traveling out of the country one of the most important factors for many people after reserving the hotel, tours, and air travel arrangements is how to pay for goods and services once in the foreign country. Recently the choices available to accomplish this task has expanded rapidly.

Travelers can use credit cards, ATM cards, cash, debit cards, currency cards, foreign bank accounts or traveler’s checks (although these are now less common). In the following article we will give you a step by step explanation of the pros and cons of each payment method, how to check current rates and rate trends, how to minimize fees and commissions, exchange methods to avoid, and other helpful tips.

First Things First: Find Out Current Exchange Rates

This is the traveler’s first step in the process. One must find out the current interbank exchange rate (free of fees and commissions) between your home currency and the foreign currency before shopping around for the best deal. These are just 3 out of many good sites to use to accomplish this.

XE.com – One of the leading currency exchange sites on the web. The site offers a quick chart of the most common currency pairings with current rates, historical rates, and a chart feature to help see any historical trends. This site does try to tie in purely objective information with commercial advertisements and services so be careful where you click!

Yahoo! Finance Currency – A new section added to one of the premier finance web sites on the web. This section has user friendly features such as quick currency converter guides (with several common denomination calculations done in table form), charts, and converters.

Exchange-Rates – A site devoted to exchange rates and basic exchange information.

Any of these sites will do the trick. The single most important aspect to look for is simply what the current exchange rate is between your home currency and the foreign currency.

Especially for less familiar currencies it is also important to make sure you are interpreting the conversion correctly, and not reversing the quotes. For instance if it is quoted USD/EUR @ 1.4, this means for every 1 Euro you would get 1.4 US Dollars. And for every 1 USD you would get .714 Euros (the inverse of the exchange rate). Most people know the overall relationships of the most popular currencies but if you are traveling through multiple foreign countries and need to change from one foreign currency to another, this can get confusing.

After you determined the current exchange rate, one could look at a chart to see if there is any trend in place.

For instance take this chart I pulled for the USD/EUR relationship over the past 2 years from Yahoo! Finance:

One can clearly see the trend since March of 2009 of a weakening of the US Dollar through that period. This is evidenced by the Euro buying 1.25 Dollars in March, while currently (October 2009) 1.45 Dollars are needed to buy 1 Euro.

What do trends mean? Not too much. The average traveler shouldn’t really worry about this unless he or she has a STRONG feeling of a further weakening of their home currency before they actually travel. Then it could make sense to exchange currencies as soon as possible to avoid a further weakening of the buying power. For instance in the example above if a traveler was leaving for France in July but exchanged currencies in March they would have an extra 86 Euros for every $1,000 USD exchanged.

If you are planning to exchange a large amount of money (more than $2,500-$5,000 USD or so) it could be worth staggering your exchanges. This helps minimize the risk of loosing if your home currency were to weaken substantially (as in the above example). It employs the same concept as dollar cost averaging in stock investing.

Now that you have a good idea of what the rates are currently, how to interpret them, and where they have been, time to do some exchanging!

What Form or Payment Method is Best To Use?

Usually using an ATM or a credit card are your best bets for getting the cheapest rates. In fact either one of these methods should give you the same rate you researched earlier. There is normally no mark up or commission derived from within the rate.

However, using either the ATM or credit card will entail fees and possibly several of them. Credit cards do not charge an “enhanced exchanged rate” meaning the exchange rate quoted should be the interbank rate, however if you make a purchase in a foreign currency they will charge either a flat fee or a flat percentage of the purchase.

There really is no way to avoid this fee with most credit cards. Capital One however does offer a credit card with no currency conversion or transaction fees. If you travel often it might make sense to get a Capital One credit card even if it turns out to be nothing more than a travel credit card. As an aside (for high credit score customers) the company does offer one of the best cash back deals currently available (1% or 3% depending on the purchase; foreign or domestic).

ATMs will usually charge 2 fees. Usually your home back will charge a fee for the transaction and the foreign bank/institution will also charge a fee every time you make a withdrawal. Therefore it makes sense to make as few transactions as possible and take larger amounts of money each time (if you feel safe doing so).

Both the credit card and ATM card methods will usually save you 4-6% in total versus other methods.

Direct exchanges of home currency cash in the foreign country at airport, tourist areas, and the like should be avoided. Usually there is no “fee” per se, however in its place the exchange rate is reworked to build a commission within the rate for the establishment. These kiosks or stores offer the worst deals, so they are to be avoided. It is a much better idea to visit a bank in your home country first to at least give you a small amount of foreign cash to get through the airport and to your destination.

Traveler’s checks also are usually not a great alternative. It is becoming an antiquated form of payment and the final cost is also fairly high. The main advantage of these is security. If you lose a travelers’ check it can usually be replaced at little cost to you. However for this convenience they are more expensive.

A more recent variation on this theme is the travelers check card and Travelex. This is a better alterative to a traditional check, but still is among the most expensive methods. Exchange rates in and of themselves could be close to the same levels one would get with ATMs or credit cards, but there are more fees attached and they tend to be somewhat higher. Activation, recharge, and replacement fees are a few examples.

If you are traveling for an extended period of time or will need a large amount of money it could be worth the effort of opening a bank account at a foreign institution in their currency. This would minimize fees but it does create tax reporting issues for both the United States and the foreign country. This would not make sense for 95% of travelers, but if you see yourself visiting this country often in the future and want a permanent cash presence in that currency this could worthwhile.

Getting The Best Rate For Your Exchange

Regardless of which method you choose, the best way to get the best rate is to shop around (big surprise). Usually you should work with a bank that you have the bulk of your accounts with. Bigger banks are a great resource if you belong to one of them, as they should be able to help you exchange funds directly.

As stated before if you will be using credit cards your cheapest choice is Capital One, as they charge the straight favorable intebank rate on exchanges and do not charge any fees. This is a great deal!

As far as travelers checks and check cards make sure you get a fair comparison including all fees. Ask what fees come with the checks/cards including activation, recharging the card, use fees, transaction fees, etc.

Also of note, some countries like The Bahamas, Belize, and Bermuda have their currency pegged directly to the dollar. So there is no need to convert from the USD to their currency as it is worth the same. This would mean no exchange costs and no transaction fees to worry about.

If you take your time and follow these tips the exchange from your home currency to the foreign currency should prove stress free and relatively cheap. Also depending on the amount of funds you are converting you can minimize your risk of being subject to wild currency swings especially during these volatile times.

The Best Tips For A Person Emigrating To Another Country

Whether expatriating from your home country temporarily for work or study, or with the intent to permanently take residence in a new, or host, country, the complex web of decisions and preparations can leave one dizzy with equal amounts of excitement and confusion. The best approach is to plan early, plan thoroughly and plan thoughtfully.

There is no universally agreed upon term for “expatriate”, commonly abbreviated to “expat”, but it is generally accepted to refer to a relocation of at least six months to a country different from your primary country of residence.1

It’s a big step for anybody, but even more so for those taking a spouse or family. Before accepting an opportunity, consider that studies have shown that up to 60% of premature repatriations are driven by an inability to adjust, either to the host country and/or to the work environment, whereas only 10% were shown to be job performance. The same studies suggests that, in general, older and more experienced individuals, or those with strong individual characteristics, such as diplomacy, adjustment, flexibility and coping skills, experienced a successful expatriate term.1

There are many critical steps that you can and should take to reduce having your expatriating experience become one of those statistics.

First Steps

The identity and location of your country of choice dictates the degree of paper work, documentation, filings, fees, immunizations and record keeping. The commitment to follow through must be unquestionable, particularly if a spouse or children are following your lead, as some hoops and hurdles may seem overwhelming at times.

But, first things first…take care of you. If you accept a temporary work commitment in another country, understand that the world and your home country business continue to change and evolve, both positively and negatively. Negotiate a written contract with your home country company detailing the length and goals of the assignment, clearly document who is responsible for what expenses and how reimbursement is coordinated, clarify insurance coverage, how income tax is handled and the impact on your retirement account and/or 401k, what vacation and holiday is proportioned, and most important, your career path upon returning. Business operations, goals, staffing, software and policies all may be very different when you return, so have a clearly written and unambiguous contract in place or it may result in a leap of faith.2

If your spouse intends to work, consider what career options are available in the host country, and the same considerations apply to their repatriation and returning to a workplace or industry where they have been absent. It may be personally difficult to adapt to a new culture, work environment and job responsibilities, but the adaptation may be overwhelming for a spouse or children, who may lack the employment, social, or educational interaction and familiarity they enjoyed in their home country. A 2006 GMAC study found that 67% of failed attempts to relocate to a different country were due to spouse or family discontent.3

Once again, there are many critical steps that you and your family can and should take to reduce having your collective expatriating experience become part of this statistic.

Getting Started

If emigrating for a work commitment with an existing employer, the first resource is the human resources or dedicated emigration team, particularly if emigration within a global company is standard procedure. They may coordinate all of the visa, passport, fees and initial documentation, but be clear on who is doing what and follow-up to ensure completeness to avoid arriving at customs not knowing whose on first and what’s on second.

Other resources include the host country’s embassy, government websites and visitors bureaus and other expats currently living there. The globalization of business has led to many expat focused web-based forums and information sources, as well as professionals who make a nice living understanding and coordinating the immigration maze of other countries.6

Every country is unique in its immigration policies and procedures. Many countries employ a tier system and what tier applies largely depends on what country you are from and your intentions while there, such as professional, student, migrant or specialized worker, etc. For instance, if emigrating to the UK from a non-EU country, a 5-tier system is used, with point values for different categories within each tier. Your “score” dictates whether you are approved and what activities you may do while there.4 Australia has a couple of unique criteria, such as it’s Values Statement, which states that while there you will respect the Australian way of life and obey all Australian laws. It also must be acknowledged in writing that the Values Statement has either been read aloud to you or explained to you, so there is no ambiguity as to whether you know and understand what you signed. If you are over 18, you may also be required to provide Good Character Documentation, which may result in requesting “penal overseas clearance certificates”, which is the equivalent of a police report from any country you have lived in or visited.5

If bringing family, they may need additional or different documentation. For instance, in Singapore, unmarried adults are not considered defacto partners, therefore ineligible for dependent immigration status. Instead, the partner must apply for a long-term visitors pass, which prohibits them from working.6

Give yourself at least four to six months7 to file for and receive the necessary visas and passports, double check the expiration dates and keep multiple copies to ease the pain of replacement if lost or stolen. Know what documentation is required at application and what, if any, additional information is required upon arrival. Some general examples of additional documentation include:

• proof of citizenship
• immunization records and proof of health status
• proof of financial support
• intent of duration and intent to leave
• intended activities while there
• birth or marriage certificates

Remember, a visa is not a golden ticket…it is the means to ask permission to enter the country…you can always be denied.

If you intend to drive, an international drivers license can be obtained in advance through AAA, which offers assistance. A valid drivers license, completed application, USD$15 and 2 passport photos may be submitted in person or by mail. This process generally takes 4-6 weeks and cannot be initiated more than 6 months prior to departure.8

Logistics

Planning and coordinating the logistics of your move might be the ultimate test of endurance and perseverance. Again, start as early as possible, ideally four to five months7. But don’t start packing yet! The logistical details will largely depend on your host country.

If possible, take a “look see” visit to familiarize yourself with the types of housing available, location and proximity to schools, shopping, parks and other cultural or entertainment areas of interest, look through different neighborhoods and talk to other expats already living there, as they can help you assess your options. Try to get a feel for the culture and the norms of social and business situations, such as dress, mannerisms, food and dining etiquette. What might seem unconscionable for you to eat could very well be considered a delicacy in other areas of the world. Even seemingly routine actions or gestures can be misunderstood. In some cultures it is offensive to give gifts, and body language varies widely. In India, moving your head from side to side means yes, and in Japan a smile and a nod is considered a polite refusal. Even something as innocent as the distance between two people when speaking differs. Latin Americans and Arabic people generally stand closer than the 30 inches often preferred by most Americans.9

Consider climate changes and the potential impact on your health or happiness. If you are accustomed to a sunny and warm climate, moving to a damp or cold area could pose health concerns, both physical as well as emotional. Take note of the air and water quality, and the acceptable degree of hygiene used in food preparation. In more rural areas, the air may be cleaner and less polluted than large cities, but the water from the tap is undrinkable and a hair net is unthinkable.1

Walk through multiple housing options to get a feel for available space and amenities. For instance, in Amsterdam the doors and stairways are very narrow, making it difficult, if not impossible, to move large American furniture through. And in London, most rental units come fully furnished, so arriving with a moving van full of furniture, dishes and boxes could make for pretty tight living quarters. Even seemingly trivial things, like plumbing for showers or baths, water pressure, and the general cleanliness of tap water used for washing or cooking should be assessed.6

Learn about transportation, as most metropolitan areas have some form of mass transit and a car may not be necessary or expensive to park and maintain, not to mention the expense of shipping it. Leasing a car, or buying a used car once there and selling it before repatriating, is also a consideration. If English is not the primary language spoken, find an English newspaper, as many expats sell items and vehicles before repatriating.6

If the work assignment is for an extended period or if once established, you choose to purchase property rather than rent, once again, the opportunities and regulation between countries varies greatly, as does the availability of credit and financing options. Should you choose to stay indefinitely and attain citizenship, the documentation and filing paper party begins again, and approval is discretionary. For instance, in countries with nationalized health care systems, approval is not one layer, but includes a review and approval by a health care board to determine if your health issues might put an undo burden on the existing medical system, with some countries imposing height to weight ratios to avoid the possibility of incurring future weight related medical expenses.4,5,6

Packing Tips and Resources

Packing poses it’s own set of unique challenges, and determining what you actually need to bring versus what can be stored is time consuming. In addition, consider that you may want to purchase or lease home décor more typical of homes in your host country. Moreover, every household item taken to a different country must be itemized for insurance purposes, considering that one in four overseas moves results in some type of physical property damage. The electrical voltage may also be incompatible, so be prepared to make adjustments for everyday things such as cell phone chargers, laptop cords and any other appliance that uses electricity.6

The reputation of the moving company is key, so do not be shy when asking for references and clarifying whether the local branch is subject to regulation imposed by your home country. Also, pay close attention to price calculation, as many charge by cubic meters, and know exactly what your employer requires if seeking reimbursement.6

The Honeymoon Phase

The “Honeymoon Phase” refers to the period when it is all new and romantic and exciting. Being culturally aware and knowledgeable about the customs and etiquette of your host country helps extend it, but everything cannot be addressed in advance. The political climate may be vastly different, or the manner in which women or children are viewed, particularly working women, may be contrary or offensive to your views.

Health concerns can also jolt this time to a screeching halt. If you or your family get injured, ill or pregnant, the quality and accessibility of health care varies widely among countries and cultures, as does insurance and acceptable methods of payment. Understand what insurance options best suit your needs, be it international, employer provided, locally purchased or national health care systems, the latter of which expats may be excluded from entirely and citizens of the host country may receive preferential treatment.6

These types of issues can be exacerbated by language barriers and social, or lack of, activities that may vary or fall below initial expectations.

Traveler/Expatriate Security Support Program

Companies that incorporate an expatriate program are encouraged to develop and enforce a comprehensive Expatriate Security Support Program (ESSP), including pre-departure security training, particularly if employees routinely travel to developing or politically volatile countries. There are multiple instances of expats incurring injury, death, car jackings, kidnappings or possible prison time, many of which could have possibly been avoided with proper training. But unfortunately, a lack of training in how to protect themselves, a lack of knowledge about the culture and local laws, and a lack of awareness that a potential threat even existed, has resulted in many expatriate victims across all countries and within all cultures.

If your company does not employ an ESSP program, personally evaluate how you and/or your family could be susceptible, or even possibly the target, of expat targeted violence. Following are some of the types of vulnerabilities incurred when living in a foreign country:

• volatility of political climate and acceptability of government criticism
• general views of the host country towards your home country and culture
• physical appearance, language barriers or mannerisms that easily identify you as not native to the host country
• location and economic environment of the the host country (eg developing versus developed, rural versus metropolitan)
• radical or extreme religious or cultural threats, either towards your religion or culture or within the country itself
• enforcement of local law, with varying degrees of due process and punishment, for offenses that are legal and acceptable in your home country
• residential vulnerability, primarily in developing countries
• unfamiliarity and a lack of awareness of surroundings and their inherent potential threats
• current and historic examples of expat targeted violence or threats

Know in advance what course of action to take if you are victimized in another country and what resources may be available from your home country’s local embassy and from your company.

Financial Concerns

The best advice from experts is to have all banking and financial relationships intact and organized before leaving your home country. Some financial institutions have dedicated expat divisions or special expat programs and it could be worth opening an account in advance.

Post 9/11 and the concerns with non-resident banking relationships, expats may find it difficult to open a new account in their host country, and you may be required to provide a variety of supporting documentation, such as a government ID, passport, banking references, employment references, proof of compensation, proof of residence in the home country as well as in the host country, and verification of duration of stay. Most banks also charge a currency conversion fee for every FX transaction, which is reduced by using an ATM or debit card, which charges the internal bank-to-bank rate rather than a discretionary fee. Even when you successfully open an account at a host country bank, it is difficult to establish or be granted credit, as foreign nationals are generally viewed as a high credit risk due to a lack of credit or employment history.

Taxes open up an entirely new can of worms. There are three approaches to avoiding double taxation:

• Foreign Earned Income Tax (FEIE)
• Foreign Housing Exclusion (HE) if employed, and Foreign Housing Deduction (HD) if self-employed
• Foreign Tax Credit (FTC)

It is advisable to work with a tax professional well versed and experienced in expat taxation to help determine which, if any, may apply to your specific tax situation and contract.

It Can Work

Many individuals have wonderful, educational and successful expatriation experiences. Invest the time necessary to avoid unnecessary culture shock, prepare and educate yourself and/or your family in advance of the journey, protect your career before repatriating, understand the safety precautions that must be made when living in a host country, expect the unexpected and be flexible enough to adapt and prosper…and remember, you may never have this opportunity again.

Sources:

1 “Medical Aspects of Expatriate Health:health threats”, by S. Jones, ExxonMobil International Ltd.

http://occmed.oxfordjournals.org/cgi/reprint/50/8/572.pdf

2 “Negotiating The Best Package For Your Next Assignment”, by Achim Heuser of Heuser & Collegen

http://www.expatexchange.com/lib.cfm?articleID=1373

3 “International Assignments in a Changing World”, by Griselle Cardozo

http://www.expatexchange.com/lib.cfm?articleID=2884&start=1807&page=1

4 http://www.workpermit.com/uk/uk.html

5 http://www.ehow.com/how_4464961_move-australia-from-usa.html

6 http://www.expatexchange.com/movingabroad

7 “Strategies to Help You Prepare For An Overseas Assignment” by Sondra Sen of Sherisen TSI

http://www.expatexchange.com/lib.cfm?networkID=159&articleID=534

8 http://www.aaa.com/vacation/idpf.html

9 Global Business Etiquette – “When In Rome” by Think Global Recruitment

http://www.expatexchange.com/lib.cfm?articleID=2512&clk=ok

10 “Expat Security Abroad”, by Edward L. Lee, II, Managing Director, Sleeping Bear Risk Solutions, Retired Senior Manager, Office of Antiterrorism Assistance, Bureau of Diplomatic Security, U.S. Department of State

http://www.globalhrnews.com/b4/vsites/22/storydoc/EdLeepresentation.pdf

11 “A Guide to Financial Services for Expats”, by Lisa R. Mitchell of Wells Fargo International Personal Banking

http://www.expatexchange.com/lib.cfm?articleID=2093

12 “Are You a Person Thinking of Accepting a Foreign Assignment? Some US Tax Matters You Should Know Before You Accept”, by Mark J. Strohl, CPA, of Protax Consulting Services

http://www.expatexchange.com/lib.cfm?articleID=1747&clk=ok