I earn in USD but my home country has a different currency INR.

Pros of holding USD:

  1. Converting to INR cost me 0.5% of the amount which I save by not converting.

  2. USD/INR rate seems to be going up for decades.

  3. More stable currency.

Pros of holding INR:

  1. Higher interest rate by bank/govt but there is also taxation on interest.

Let's assume the interest rate is consistent. Also, assume 0.5% is a fixed charge and will remain the same forever. Let's ignore geographical risk.

Now, I want to calculate which is more attractive currency. Our variables are:

  1. 0.5% fees (straight-forward)

  2. Income taxation on interests on deposit (straight-forward too)

  3. USD/INR exchange rate improvement over the years (how do I find the statistical mathematical value?)

Assuming I don't need the money anytime soon or want to invest in stocks, how do I put all these 3 variables in an equation to find more attractive currency?

Ultimately, I want to arrive at some conclusion like "There is 90% statistical chance that I will earn x% higher interest if I invest in y currency".

  • Side note - I'm pretty sure your USD interest is also taxable in India, although you might be required to self-report. Having a bank account outside your country rarely absolves you of tax requirements. Better to play by the book now, rather than get hit with penalty-type charges when you eventually repatriate the cash for your own needs in the future. Commented Mar 21, 2022 at 19:45
  • @Grade'Eh'Bacon Yes, I am aware of that. But I probably won't have to pay any tax if USD/INR exchange rate increases since their is technically no interest.
    – CodePanda
    Commented Mar 21, 2022 at 19:50
  • Interest doesn't cancel out foreign exchange losses directly. I'm not an India tax expert but I think you are oversimplifying something that has an impact on perspective. Commented Mar 21, 2022 at 20:03
  • @Grade'Eh'Bacon I am not talking "cancel out foreign exchange losses" here. I am talking about something else completely different. But don't worry, I will take care of taxation part.
    – CodePanda
    Commented Mar 21, 2022 at 20:09

1 Answer 1


According to the Fisher Effect, there should be no more attractive currency from an interest rate perspective. The increased interest rate in India should be as a result of higher expectations of inflation, and you can look to history to see if that has been true. If you believe that to be true, then keeping it in USD allows you to avoid the 0.5% fee. However, it must be true that you will use the money at some point and convert it into INR, unless your intentions are to move to the US, so whether you take the fee now or later doesn't really matter. What does matter is your 3rd point, exchange rate improvement. If you believe that the trend will continue, that USD will buy more INR over time, you can hold USD, but just know that this is taking an active investment on your part and could go either way.

  • +1: FX rates are (theoretically) at the point where every currency is equally attractive given current knowledge. Unless someone believes they have significant secret information, or more insight than every professional, they should be approaching this as a neutral choice (and thus deciding based on fees/convenience/access/etc. rather than investment gains). Commented Mar 22, 2022 at 14:40

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