Introduction

This article is for internationally mobile professionals whose financial life is spread across two or more currencies — and who suspect, correctly, that this is doing something to their wealth that nobody has quantified.

By the end you will be able to state your own currency position in one line, and you will know the three ways to reduce it, in the order we would apply them.

If your salary arrives in dirhams, your children’s school fees are quoted in sterling and your long-term savings sit in dollars, you are running a three-way currency position. Nobody sold it to you. It accumulated.

The problem is not that the position exists — it is unavoidable for anyone with an international career. The problem is that it is almost never measured, so it is never sized against the liabilities it is supposed to fund.

Three numbers to write down first

• Income currency: what proportion of your annual earnings arrives in each currency, gross.
• Liability currency: what proportion of your committed spending — housing, education, family support, debt — is denominated in each currency, over the next ten years.
• Asset currency: what proportion of your invested and cash assets is denominated in each currency today, looking through funds rather than at the ticker.

Where the gap usually appears

In practice the third number is the one that surprises people. A globally diversified equity fund reported in euros can still be 60 per cent dollar-denominated underneath. The reporting currency is not the exposure.

The gap that matters is between liability currency and asset currency. Income currency can change with your next role; a twelve-year school fee commitment usually cannot.

A hedge that costs more than the risk it removes is not a hedge. It is a subscription.

Three ways to close the gap, cheapest first

• Match new contributions to the liability currency rather than the income currency. This costs nothing and compounds.
• Hold a defined cash buffer in the liability currency for near-term commitments, so you are never a forced seller at a bad rate.
• Use explicit currency hedging only for large, dated, known liabilities — and only after pricing the annual cost against the exposure it removes.

What we would not do

We would not recommend a structured product whose main function is to make the currency question feel handled. Complexity is not the same as protection, and it is considerably easier to sell.

If your written plan does not state your currency position in one line, that is the first thing to fix. Everything else is downstream of it.