# Strategies for saving and investing in multiple foreign currencies

My wife and I are both expatriates and our financial situation is complicated by having accounts in different currencies. A frequent topic between the two of us which accounts are the best for keeping our money and how to minimize risk of exchange rate changes. As a mathematical guy, I've always wondered if there's a systematic way to do this.

Imagine we have accounts in currency A, B and C. Currency A is stable, but the bank pays a very low interest rate. Currency B is more more volatile, but the bank pays a high interest rates on savings. We are living in the country with currency B. Currency C is moderately volatile and pays a moderate interest rate.

My questions are:

• What are some strategies to balance our money?
• Is there a way to measure the volatility of a currency?-
• Can we mathematically define or measure the trade-off between a "risky" currency and a higher rate of return?
• How do we account for the fact that most of our expenses are in currency B? (Even if this currency is more volatile, this matter less to us because we are not exchanging our money out of this currency.)

I'd appreciate any thoughts about what strategies to use our what other people have done in similar situations.

EDIT

To be clear, my question isn't about how to open a foreign bank account--we've already done that. The question is how to balance our money between the different foreign currency accounts that we already have.

• There are a few questions on this site regarding opening a foreign bank account. You may have the answer - is it possible to open a foreign bank account without actually being in the foreign country? Thanks.
– Muro
Commented Aug 20, 2010 at 13:02
• Sorry if I wasn't clear. My question isn't how to open a foreign bank account--we've already done that. The question is how to balance our money between the different foreign currency accounts that we already have. Commented Aug 20, 2010 at 13:07
• How long are you planning on spending in the country with currency B? Where are you planning on retiring to? Commented Aug 20, 2010 at 19:56
• We're only going to be in currency B country for a few years. I don't know where we'll retire yet. :) Commented Aug 20, 2010 at 20:33

If you want to use that money and maybe don't have the time to wait a few years if things should go bad, than you will definitely want to hold a good bunch of your money in the currency you buy most stuff with (so in most cases the currency of the country you live in) even if it is more volatile.

Evaluating the value of currencies is always difficult because you are usually at the mercy of a central bank that can print new currency on a whim.

I am trying to diversify my currency holdings but it is difficult to open foreign bank accounts without actually being in the foreign country. Any ideas here?

You don't indicate which currencies you own but I would stick with your diversified portfolio of currencies and add some physical assets as a hedge against the fiat currencies.

• E*Trade let's you keep foreign currency balances in USD, CAD, EUR, JPY, GBP, HKD and transfer easily between them as part of their Global Trading Account us.etrade.com/e/t/investingandtrading/globaltrading One problem is that their interest rates are the foreign currencies are basically zero... Commented Aug 20, 2010 at 13:41

The bad news is that foreign exchange is ultimately somewhat unpredictable, and analyzing the risk of these things is not particularly straightforward. I'm afraid I don't know what tools exist to analyze these, aside from suggesting you look at textbooks for financial analysis classes.

The good news is that there are other people who deal with multiple currencies (international businesses, for instance) who worry about the same thing. As such, you can take a look at foreign exchange rate futures and related instruments to estimate what the market as a whole currently expects the values to do. The prices of these futures could be a useful starting point.