Who is Physical Cliff and why should we be afraid of him?

By , November 14, 2012 5:17 pm

All the big news these days stems from the “Fiscal Cliff” looming in the world’s largest economy.  If you’ve been following American politics, the two parties have been playing “kick the can” when it comes to a mandatory  across-the-board budget cut and expiring tax cuts. With the presidential election behind them, it’s time to deal with both items, or experience the “fiscal cliff.”  Should that happen, spending cuts to many government programs will automatically occur, while at the same time causing large increases in taxes for individuals and companies.

Why should we here in Korea worry about this?  So far, it’s been good news for those wishing to send money back home. The Korean Won is up against the US dollar by nearly 6% and continues to expand in value. Closing price today is 1085 to the dollar. In fact, with the exception of the Australian dollar, the Korean Won is up against nearly all western currencies. That means that sending money back home nets you more now than in the past year or two.  But don’t get cocky or greedy, thinking you can beat the foreign exchange and wait even longer to get more of your home currency. Chances are good the Bank of Korea will find some way to intervene and lower the won so exporting companies can bring home more won for the products they sell abroad.

When (or if) the fiscal cliff occurs, all bets are off as to which way the Forex goes.  The smart money says to spread your investment out over time.  In other words, send some money home regularly so that the gains (or losses) you take on the exchange rate can be spread out. Waiting for the optimal day might result in a huge loss for you personally if the exchange goes north again.

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