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>“Without a currency swap, if we were to withdraw $350 billion in the manner that the U.S. is demanding and to invest this all in cash in the U.S., South Korea
by charcircuit 1y ago
>“Without a currency swap, if we were to withdraw $350 billion in the manner that the U.S. is demanding and to invest this all in cash in the U.S., South Korea would face a situation as it had in the 1997 financial crisis,” he said through a translator.
So do a currency swap? South Korea isn't failing, do surely there would people to offer liquidity or financing to make it possible.
- msy 1y agoThere aren't a lot of counterparties to a $350Bn currency swap. SK is manoeuvring to make the Fed offering the swap and thus taking the FX risk as a requirement for this deal, which is I suspect why you're reading about this.
- bfg_9k 1y agoThat's... not how FX swaps work. FX swaps are where Korea fronts up with however many trillion KRW, giving it to the Fed (or whoever else, but the Fed would be the only counterparty that would be able to accommodate that size), the Fed then hands over the USD to the Koreans. Presumably, the Koreans would then invest that USD. Then at some point in the future the trade would be unwound and each side would receive their own currency back. There's no currency risk in the trade for either side (unless one side defaults).
- mamonster 1y agoOf course there is currency risk, that's why the swap would get marked to market. There is no "currency risk" in the sense that you are locked into an exchange rate and (in case of fixed for fixed) the interest rates on the principal, but there is still currency risk. It's like saying there is no price risk in a long term LNG contract.
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- msy 1y agoWhat do you think happens if the exchange rate moves between the point of handover and the point in the future where the trade is unwound?
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- awilson5454 1y agoI’m not convinced that we know more about South Korea’s economic situation than their Prime Minister’s office.
- lovich 1y agoWhy would the South Korean government trade even more resources for this deal? What is the benefit they or their people would get?
- charcircuit 1y agoLower tariffs which will result in more American money coming in.
- jacquesm 1y agoFor that to work you need trust. And guess what is being eroded even faster than the value of the USD right now?
- charcircuit 1y agoEven though I disagree with your implied claim that trust is eroding, you don't need trust for it to work. Economic principals cause it to naturally work. As you move along a price curve reducing the price you typically will make more sales.
- jacquesm 1y agoNo, for some products trust is more important than price. If the price is low but you can't trust it to work when you need it most then the price is irrelevant.
- charcircuit 1y ago>then the price is irrelevant Not everyone is irrelevant to the American market. The negotiations around American tariffs are not relevant if you are not selling to America in the first place.
- jacquesm 1y agoThere are more perspectives to this than just the USA one.
- summerlight 1y ago> So do a currency swap? It is the US who refuses to do.