FX Funding Risks and Exchange Rate Volatility–Korea’s Case
IMF Working Papers, November 7, 2012
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- FX Funding Risks and Exchange Rate Volatility–Korea’s Case
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Bibliographic details
- Authors: Jack J Ree, Kyoungsoo Yoon, Hail Park
- Published: November 7, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475565171.001
Research question and scope
- Examines how exchange rate volatility and Korean banks’ foreign exchange (FX) liquidity mismatches interacted during the Global Financial Crisis.
- Assesses whether the vulnerability from this interaction has been reduced since the crisis.
- Subject areas: Banking, Currency markets, Exchange rates, External debt, Financial institutions, Financial markets, Foreign banks, Foreign exchange.
Key findings
- Structural and cyclical changes after the crisis point to a possible weakening of the interaction mechanism between exchange rate volatility and FX liquidity mismatches.
- Evidence presented in the paper is described as strongly supportive of a weakening interaction mechanism.
- Identified elements influencing the interaction include:
- Decreasing demand for currency hedges.
- Diversifying investor base for bonds.
Analytical focus and terminology preserved from the source
- FX funding risks and exchange rate volatility interaction during the Global Financial Crisis.
- Concepts and keywords used in the paper:
- 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
Implications (as described in the source)
- The post-crisis structural and cyclical changes imply a reduced vulnerability stemming from the interaction of FX liquidity mismatches and exchange rate volatility.
- Specific mechanisms cited as contributing to reduced vulnerability:
- Reduced demand for currency hedges.
- More diversified investor base for bond funding.
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- Format listed on the landing page: Download PDF; More Formats on IMF eLibrary; Order a Print Copy; Create Citation.
IMF Working Papers — FX Funding Risks and Exchange Rate Volatility–Korea’s Case (Working Paper No. 2012/268, November 7, 2012).