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Along with the school holidays, summer is a popular time for family vacations. As prices for overseas holidays are usually inflated during the summer travel period, it is not unusual for travelers to scout around for the best air-ticket, accommodation and package tour deals. Many also take advantage of the summer sales to make the most of their travel budget. However, do you know that currency rate changes can make you pay much more for your holiday?

The foreign exchange market saw drastic movements in the past year. Currencies of some popular tourism destinations appreciated sharply while others dropped. This may have a huge impact on your travel budget, in particular for free and easy travelers who want to plan their trip by their own.

Travelling destinations with sharp changes in currency value:

  Exchange rate against HKD (27 July 2016) One year changeMain reason
1 Renminbi (China) 1.1625 Down 7% With China's economic slowdown, the Renminbi ended its rising trend and started to depreciate since 2014.
2 Pound (U.K.) 10.244 Down 15% The Pound experienced a significant plunge as Brexit cast huge uncertainty on the British economy.
3 Yen (Japan) 0.0734 Up 17% Japanese Yen drifted lower in recent years due to the quantitative easing embarked by the Japanese central bank. But the Yen rebounded sharply as Britain's vote to leave the European Union prompted investors to flee global markets and seek safety in Japanese assets.

 

Japan is one of the most popular holiday destinations for Hong Kong people. Say a family of four planning a 5-day trip to Tokyo, with expenses including accommodation, transportation, meals, admission tickets to different attractions will expect to spend at least tens of thousand dollars. More budget will be needed for shopping. The exchange rate of the Japanese Yen is now 17% higher than last summer, and thus expenses for a Japan trip will increase comparatively when you convert the Yen to the Hong Kong dollar. Therefore, currency changes are also a consideration when planning the travel budget. One way to manage currency fluctuations for example, is to purchase foreign currency in smaller amounts at different periods to balance out the changes, and reduce the impact on our travel budget.

Exchange rates of other currencies against HKD (one year change):

Euro up 1% Australian Dollar up 3% South Korea Won up 3% Taiwan Dollar down 2%

 

This balancing out method is also useful in personal investment. Known as dollar-cost averaging (DCA), this important long-term investment strategy helps to mitigate the risk of market fluctuations by investing a fixed amount at regular intervals, whatever the price of the securities. In the long run this averages out the buying costs and reduces the impact of short-term changes in the market.

Whether you are planning your holiday or making an investment, the key is to start planning early and do it carefully. Consider different factors and use appropriate management strategies to help you to achieve your targets.