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

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Author Info

  • Jack Ree
  • Kyoungsoo Yoon
  • Hail Park
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    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.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=40087
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/268.

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    Length: 29
    Date of creation: 07 Nov 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/268

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    Related research

    Keywords: Foreign exchange; Korea; Republic of; Banks; Exchange rates; Exchange rate variability; Financial systems; Capital markets; External shocks; hedging; bonds; exchange rate regime; currency appreciation; flexible exchange rate; daily exchange rate; hedge; currency risks; derivative; hedge ratios; currency mismatch; currency swaps; exchange rate variation; exchange rate volatilities; real effective exchange rate; floating exchange rate regime; treasury bonds; financial markets; international financial markets; currency hedging; hedges; forward contract; financial stability; dollar exchange rate; derivatives market activity; international currencies; derivative products; domestic bonds; debt stock; currency crisis; cash flows; international reserves; exchange rate management; flexible exchange rate regime; stock prices; daily exchange rates; foreign exchange market;

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    Cited by:
    1. 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.

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