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Understanding How Currency Movements Can Impact Expat Life

In the excitement of planning a move overseas, finding somewhere to live and negotiating a suitable benefits package, many expats can forget one very important aspect: currency. This article takes a look at currency movements and how the risk that these can occur should be taken into consideration when planning a move abroad.

Currency and Life Abroad

The value of the currency of your home country when compared with that of your host country can have a significant impact on your financial wellbeing and standard of life overseas. Many expats relocate with a job move, through retirement or because they are seeking a new way of life away from the stresses and strains of routine careers. Regardless of the reasons why you may be relocating, it is important that you understand that, if the country that has a different income from that of your home country, there is a currency risk that you will need to manage in order to ensure that your future income and standard of life is protected.

Future Income

The value of your future income can be a problem if you are paid or receive income in a currency that is different from that of your host country. For example, if you are a retiree that receives your pension in US dollars but move to Europe to live, then a currency risk can occur when converting your income to the denomination of your new home. While the currency exchange rate at the time of relocation may be favorable, you cannot guarantee that this will remain the same and you will be taking a significant risk if you base your future life plans on income that is denominated in n alternative currency from that of your host country. The more financial commitments you make in this country, the higher the risk. For example, if you purchase a home or take out a loan, you need to ensure that your medium and long-term risks are considered and managed. Recent events in Greece are testament to the importance of being aware of the threat of currency fluctuations and fully covering all angles.

Of course, currency fluctuations can also work in your favor and many expats do benefit from currency movements. However, this is never guaranteed and you certainly should not plan your long-term financial survival on the prospect that this could happen.

Managing the risk associated with currency fluctuations

If there is a real risk that currency fluctuations may impact your ability to survive on a long-term basis overseas then you need to consider managing these risks using appropriate financial instruments. Many expats do hedge currency fluctuations. However, this may not always be the best course of action and managing fluctuations on an ongoing basis incurs financial management fees. Deciding on which is the best course of action for your unique situation involves weighing up the extent of the risk and the long-term potential of both of the currencies with which you are involved. It is always advisable that you seek the services of a professional financial advisor to help you to do this.

Author: ExpatInfoDesk