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FX Funding Risks and Exchange Rate Volatility–Korea’s Case

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  • Mr. Jack J Ree
  • Mr. Kyoungsoo Yoon
  • Mr. Hail Park

Abstract

This paper examines how exchange rate volatility and Korean banks’ foreign exchange liquidity mismatches interacted with each other during the Global Financial Crisis, and whether the vulnerability stemming from this interaction has been reduced since then. Structural and cyclical changes after the crisis, including decreasing demand for currency hedges and the diversifying investor base for bonds, point to a possible weakening of the interaction mechanism; and we find evidences are strongly supportive of this.

Suggested Citation

  • Mr. Jack J Ree & Mr. Kyoungsoo Yoon & Mr. Hail Park, 2012. "FX Funding Risks and Exchange Rate Volatility–Korea’s Case," IMF Working Papers 2012/268, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2012/268
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    References listed on IDEAS

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    1. Chris Becker & Daniel Fabbro, 2006. "Limiting Foreign Exchange Exposure through Hedging: The Australian Experience," RBA Research Discussion Papers rdp2006-09, Reserve Bank of Australia.
    2. Hail Park, 2011. "Limits to Arbitrage in the Swap and Bond Markets: the Case of Korea," Working Papers 2011-14, Economic Research Institute, Bank of Korea.
    3. Naohiko Baba & Ilhyock Shim, 2010. "Policy responses to dislocations in the FX swap market: the experience of Korea," BIS Quarterly Review, Bank for International Settlements, June.
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    Cited by:

    1. Ghosh, Atish R. & Ostry, Jonathan D. & Qureshi, Mahvash S., 2018. "Taming the Tide of Capital Flows: A Policy Guide," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262037165, April.
    2. Hyeyoon Jung, 2021. "Real Consequences of Shocks to Intermediaries Supplying Corporate Hedging Instruments," Staff Reports 989, Federal Reserve Bank of New York.
    3. Wishnu Mahraddika, 2021. "How effective is capital flow management? The Indonesian experience," Departmental Working Papers 2021-15, The Australian National University, Arndt-Corden Department of Economics.
    4. Mr. Jack J Ree & Seoeun Choi, 2014. "Safe-Haven Korea? - Spillover Effects from UMPs," IMF Working Papers 2014/053, International Monetary Fund.
    5. Ms. Yuko Hashimoto & Signe Krogstrup, 2019. "Capital Flows: The Role of Bank and Nonbank Balance Sheets," IMF Working Papers 2019/085, International Monetary Fund.
    6. Dong He & Robert N McCauley, 2013. "Transmitting Global Liquidity to East Asia: Policy Rates, Bond Yields, Currencies and Dollar Credit," Working Papers 152013, Hong Kong Institute for Monetary Research.
    7. Maurice Obstfeld, 2014. "Never Say Never: Commentary on a Policymaker’s Reflections," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(4), pages 656-693, November.
    8. Renu Kohli, 2015. "Capital Flows and Exchange Rate Volatility in India: How Crucial Are Reserves?," Review of Development Economics, Wiley Blackwell, vol. 19(3), pages 577-591, August.

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