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FX Funding Risks and Exchange Rate Volatility-Korea's Case

Author

Listed:
  • Jack Joo K. Ree

    (International Monetary Fund)

  • Kyoungsoo Yoon

    (The Bank of Korea)

  • Hail Park

    (The Bank of Korea)

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

  • Jack Joo K. Ree & Kyoungsoo Yoon & Hail Park, 2013. "FX Funding Risks and Exchange Rate Volatility-Korea's Case," Working Papers 2013-12, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1312
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    File URL: http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2013-12.pdf
    File Function: Working Paper, 2013
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    More about this item

    Keywords

    Foreign exchange liquidity mismatch; exchange rate volatility; capital flows; macroprudential measures; dollar funding market.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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