IMF Working Papers

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

By Jack J Ree, Kyoungsoo Yoon, Hail Park

November 7, 2012

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Jack J Ree, Kyoungsoo Yoon, and Hail Park. FX Funding Risks and Exchange Rate Volatility–Korea’s Case, (USA: International Monetary Fund, 2012) accessed September 19, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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. 

Subject: Banking, Currency markets, Exchange rates, External debt, Financial institutions, Financial markets, Foreign banks, Foreign exchange

Keywords: Bank branch, Capital flows, Currency markets, Debt, Derivative position, Dollar funding market, Exchange rate, Exchange rate volatility, Exchange rates, Foreign banks, Foreign currency, Foreign exchange liquidity mismatch, FX derivatives position, FX market, Global, Liquidity, Liquidity mismatch, Macroprudential measures, Short-term debt, WP

Publication Details

  • Pages:

    29

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2012/268

  • Stock No:

    WPIEA2012268

  • ISBN:

    9781475565171

  • ISSN:

    1018-5941