Book contents
- Frontmatter
- Preface
- Shinichi Ichimura, 1925-
- CONTENTS
- Introduction
- Contributors to This Volume
- I Structural Change and Economic Development in Developing Asia in the 1990s
- II Explaining the Success of the Four Little Dragons: A Survey
- III Taiwan's Economic Miracle: A Singaporean Perspective
- IV Singapore's Experience of Industrial Restructuring: Lessons for the Other Asian NIEs
- V Korean Industrial Policies for Declining Industries
- VI Vietnam: Recent Economic Developments and the World Economy
- VII Transition from Import Substitution to Export Expansion: The Thai Experience
- VIII Adjustment Problems of a Small Oil-Exporting Country: Did Indonesia Suffer from the Dutch Disease?
- IX A Quarterly Econometric Model of the Hong Kong Economy
- X The Effect ofRicardian Rent Extracting on Macroeconomic Performance
- XI Direct Foreign Investment and the Economic Development of Korea
- XII Japanese Investment in Thailand: Looking Back and Into the Future
- XIII The Effects of Direct Foreign Investment on Taiwan: A Macroeconometric Investigation
- XIV A Reform of the Foward Foreign Exchange Market and Foreign Exchange Rate Determination Policy in Korea, with Foreign Exchange Policy Experiences of Taiwan
- XV Interest Rate and Foreign Exchange Liberalization in Taiwan in the 1980
- XVI Manifold Dilemmas behind External Debt Management
- XVII Agricultural Growth and Food Imports in Developing Countries: A Reexamination
- XVIII The Transformation of Rural Asia and Economic Development Theory and Policy
- XIX The ASEAN Summit and ASEAN Economic Cooperation
- XX The Role of Developing Countries in the New GATT Round
- XXI The Emerging Global Economy and the Role of the Asian NIEs
- Index
XIV - A Reform of the Foward Foreign Exchange Market and Foreign Exchange Rate Determination Policy in Korea, with Foreign Exchange Policy Experiences of Taiwan
Published online by Cambridge University Press: 21 October 2015
- Frontmatter
- Preface
- Shinichi Ichimura, 1925-
- CONTENTS
- Introduction
- Contributors to This Volume
- I Structural Change and Economic Development in Developing Asia in the 1990s
- II Explaining the Success of the Four Little Dragons: A Survey
- III Taiwan's Economic Miracle: A Singaporean Perspective
- IV Singapore's Experience of Industrial Restructuring: Lessons for the Other Asian NIEs
- V Korean Industrial Policies for Declining Industries
- VI Vietnam: Recent Economic Developments and the World Economy
- VII Transition from Import Substitution to Export Expansion: The Thai Experience
- VIII Adjustment Problems of a Small Oil-Exporting Country: Did Indonesia Suffer from the Dutch Disease?
- IX A Quarterly Econometric Model of the Hong Kong Economy
- X The Effect ofRicardian Rent Extracting on Macroeconomic Performance
- XI Direct Foreign Investment and the Economic Development of Korea
- XII Japanese Investment in Thailand: Looking Back and Into the Future
- XIII The Effects of Direct Foreign Investment on Taiwan: A Macroeconometric Investigation
- XIV A Reform of the Foward Foreign Exchange Market and Foreign Exchange Rate Determination Policy in Korea, with Foreign Exchange Policy Experiences of Taiwan
- XV Interest Rate and Foreign Exchange Liberalization in Taiwan in the 1980
- XVI Manifold Dilemmas behind External Debt Management
- XVII Agricultural Growth and Food Imports in Developing Countries: A Reexamination
- XVIII The Transformation of Rural Asia and Economic Development Theory and Policy
- XIX The ASEAN Summit and ASEAN Economic Cooperation
- XX The Role of Developing Countries in the New GATT Round
- XXI The Emerging Global Economy and the Role of the Asian NIEs
- Index
Summary
The Need for Forward Foreign Exchange Market Development in Korea
As the world moved into a floating exchange rate system in 1971 and Korea adopted a basket-currency gliding system in 1980, the need to hedge against foreign exchange rate fluctuations became much greater.
Since the five major countries (G5) — the United States, Japan, Germany, France, and the United Kingdom — readjusted their exchange rates in September 1985, the fluctuations in exchange rates have been more volatile. The sizeable appreciation of the Korean won (hereafter called the won) against the U.S. dollar resulted in large losses for exporters. Small and medium-sized export-related firms were especially affected since the large firms were generally able to transfer a large portion of their losses arising from foreign exchange rate changes to the former. Net losses from foreign exchange rate changes are estimated to be 6,800 billion and 1,900 billion won in 1985 and 1986, respectively (Lee 1987). Further, a variety of other factors, such as the decrease in finance to export-related activities, rapid rises in imported raw material prices and persistent protectionism in the advanced countries, have added to uncertainty for traders.
Thus, to hedge risks and to fix the costs and revenues arising from foreign trade in the stage when trade contracts are fixed, a forward foreign exchange market is needed. An active forward foreign exchange market amounts to having an export support scheme and enables an importer to fix import costs in advance. Such a system would improve export competitiveness and increase exports without causing retaliation or protectionism from trade partners. Moreover, the system enlarges the volume of trade and diversifies export regions.
The ongoing trade and capital liberalization requires foreign exchange liberalization as well. But decontrolling the foreign exchange market and internationalizing capital markets in turn requires developing a sound forward foreign exchange market.
The Current Situation and Problems in the Forward Foreign Exchange Market
The present status of the Korean forward foreign exchange market
Although the forward foreign exchange system was introduced in February 1968, it was not until February 1978 that all foreign currencies -were included in the system. And it was not until July 1980 that forward foreign exchange transactions between the won and foreign currencies were allowed. More recently, however, control of the forward foreign exchange system lessened, and currency futures, currency options, and currency swaps were allowed by October 1987.
- Type
- Chapter
- Information
- Economic Development in East and Southeast AsiaEssays in Honor of Professor Shinichi Ichimura, pp. 228 - 241Publisher: ISEAS–Yusof Ishak InstitutePrint publication year: 1990