Currency depreciation refers to the fall in the value of a country’s currency relating to the other currencies in an FX (foreign exchange) market. It has a major impact on study-abroad aspirants. Your education loan, disbursement of tuition fees to the university, and money transfers to and from the host country- everything is affected.
This happens because when the home currency weakens (its value declines), the same amount of your home currency buys fewer units of foreign currency. Understanding how to deal with currency depreciation can help you reduce the impact of currency depreciation on your education loans to study abroad. To know the details, continue reading further.
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What is Currency Depreciation?
Currency depreciation means when the value of your home currency declines concerning the value of foreign currency. Multiple factors like economic conditions, inflation, political stability, foreign investments, trade deficit, etc. are responsible for currency depreciation. The purchasing power of an individual is highly affected by currency depreciation.
An example of currency depreciation is when 1 USD equals 90 INR. However, due to changes in market conditions, the value of 1 USD went to 93.15 INR. You can notice a decline in the value of INR as more of INR would be needed to buy 1 USD.
As a result, international students are impacted because they require a higher amount to bear study abroad expenses.
Also Read: Check out this blog on currency exchange in Berlin. Know about top banks and currency exchange providers in 2024.
Impact of Currency Depreciation on International Students
Currency depreciation occurs as a result of exchange rate volatility. It can make studying abroad more expensive. This reduces the buying power of the student in a foreign country. It can also impact the repayment burden of education loans, wire transfers, and overall financial health. Find out how-
Impact on Student Loans & Repayment
Most students prefer to take an education loan to study abroad. Currency depreciation can impact the overall cost of your expenses, increasing your student debt significantly. This happens because borrowing funds in INR and spending it in a foreign currency creates an imbalance in your budget.
For example, you took a collateral-free education loan for the UK of INR 45 lakhs. Initially, 1 INR might be equal to 0.02 GBP (Great Britain Pound). However, due to currency depreciation, the exchange rate shifts to 1 INR = 0.015 GBP. This means your Indian currency buys fewer Pounds, making things in the UK relatively expensive.
Considering this, the sanctioned loan amount you borrowers might not cover the entire tuition fees, living expenses, and other related expenses.
With rising costs, you might need to increase your loan amount to cover education expenses. This means a higher repayment burden on you as you’ll be repaying the loan in a potentially stronger currency. This impacts the overall strain on finances.
Impact on Wire Transfers
Wire transfers mean sending funds abroad for payment of tuition fees or other expenses. Fluctuating exchange rates can sometimes lead to increased wire transfer fees. This is because currency exchange companies or banks might adjust their fees based on market volatility to manage their risks.
For example- your parents decide to send INR 50,000 to Rohan in the UK at the exchange rate of 1 GBP = INR 100. At this rate, he would receive, 500 GBP. Later, due to currency depreciation, the INR weakens against the British pound. The new exchange rate becomes 1 GBP = 110 INR. At this exchange rate, Rohan would only receive around 454.54 GBP.
This affects wire transfers made to the UK as the same amount of money sent from India is received less. This also reduces your purchasing power abroad.
Impact on Purchasing Power
Your purchasing power in a foreign country is reduced. This is because you would require more units/ amount of home currency to buy 1 unit of the foreign currency.
For example, you budgeted INR 10,000 for monthly living expenses based on an exchange rate of 1 INR = 0.015 USD. If the INR weakens to 0.012 USD, you’d need 12,500 INR to maintain the same standard of living.
Similarly, groceries, transportation, and everyday essentials become more expensive, impacting your purchasing power.
Impact on Financial Health
Repaying loans in stronger currency can make it harder to meet other financial obligations. It can impact your credit score if you miss your loan repayment schedule. Besides, it can force you to delay other financial goals like buying a home.
Also Read: Thinking about what you should do if you encounter counterfeit currency? Check out this blog which talks about what do to with counterfeit currency.
Tips to Deal with Currency Depreciation
By now, it is clear how currency depreciation impacts education loans, disbursement funds, and international wire transfers. Let’s explore how to deal with currency depreciation in this section. It talks about important tips that can help international students to manage their study abroad budget wisely.
To deal with currency depreciation, you can hedge in the exchange rates by purchasing FRA (Forward Rate Agreements) from your bank. This helps you lock the exchange rate for future transactions. Also, international students should earn in local currency and explore scholarship opportunities. Let’s explore more tips.-
Choose Currency Hedging
Various instruments like Forward Rate Agreements (FRA) can help you lock the exchange rate for future transactions. This currency hedging strategy for international students can help them reduce potential losses due to exchange rate fluctuations.
- This lets you systematically plan your study-abroad budget and protect you against the falling/ weakening home currency (currency depreciation).
Exchange Currency When Rates Are Favorable
You must monitor exchange rates regularly. It is one of the important forex tips for international students as it helps you minimize the impact of currency depreciation on your budget.
- Use tools like Google search and currency exchange apps to identify when the exchange rate seems favourable.
- Focus on capitalizing on temporary dips. Exchanging currency and making wire transfers at appropriate times can minimize loss of balance during currency depreciation.
Explore Scholarships
Scholarships are a great way to fund your study abroad journey. They are like free money to manage your educational expenses. You don’t have to pay back the funded amount like it is done for education loans. So, actively seek out scholarships and grants to balance study abroad expenses.
- How to prepare for international scholarships is an important step in getting these aids successfully.
Earn in Local Currency
Explore remote work or freelance opportunities. Earning in a stronger currency strengthens your ability to repay loans and manage expenses abroad. It is important to ensure that remote work aligns with your study permit and visa regulations.
- Also, consider tax regulations related to part-time or freelance work in a foreign country. For example– the tax system in Canada has important guidelines for taxes for international students in Canada.
Look for Part-time Jobs
Part-time jobs in the country you are studying can help you manage your day-to-day expenses. Earning in the local currency means you avoid exchange hassles and reduce your dependency on loan amounts. This will also negate the currency depreciation impact of wire transfers from your home country.
Opt for Education Loan Top-Up
Since you would require more amount to cover the same amount of expenses, you must opt for an education loan top-up. It is an extended loan taken in addition to the existing loan for higher studies abroad.
- Make sure to choose the lender wisely. Go for one that offers attractive interest rates and favourable repayment options.
- Some of the best banks for education loan top-up are YES Bank, Bank of Baroda, and Punjab National Bank.
- Always consider top-up loans as a last resort if you are unable to manage your finances.
Carry Forex Cards
International students must consider carrying forex cards abroad. They are prepaid cards loaded with foreign currency, eliminating the need to carry large amounts of cash. They’re widely accepted at ATMs and stores, offering a convenient way to make payments.
- They offer locked-in exchange rates during the time of purchase or reloading. So, you don’t have to worry about depreciating currency.
- Multi-currency forex cards also offer exciting benefits for students like airport lounge access and discounts of purchase.
- HDFC Bank, Axis Bank, ICICI Bank, PNB, etc. are some of the best Indian banks offering personalised forex cards for international students.
This was all about currency depreciation and its impact on student loans for international students. Following the mentioned tips can help you deal with the effects of currency depreciation and plan your budget effectively.
To know more about education loans, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
FAQs
Currency depreciation refers to the fall in the value of a country’s currency relating to the other currencies in an FX (foreign exchange) market.
An example of currency depreciation is when 1 USD equals 90 INR. However, due to changes in market conditions, 1 USD equals 93.15 INR. You can notice a decline in the value of INR as more of INR would be needed to buy 1 USD.
Currency depreciation can impact the overall cost of your expenses, increasing your student debt significantly. It can make studying abroad more expensive. This reduces the buying power of the student in a foreign country. It can also impact the repayment burden of education loans, wire transfers, and overall financial health.
To deal with currency depreciation, you can hedge in the exchange rates by purchasing FRA (Forward Rate Agreements) from your bank. This helps you lock the exchange rate for future transactions. Also, international students should earn in local currency and explore scholarship opportunities.
Multiple factors like economic conditions, inflation, political stability, foreign investments, trade deficit, etc. are responsible for currency depreciation. The demand and supply of two currencies exchanged also influence currency exchange rates, leading to their depreciation or appreciation.
