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FX funding risks and exchange rate volatility


  • Ree, Jack Joo K.
  • Yoon, Kyoungsoo
  • Park, Hail


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 evidence that is strongly supportive of this.

Suggested Citation

  • Ree, Jack Joo K. & Yoon, Kyoungsoo & Park, Hail, 2015. "FX funding risks and exchange rate volatility," Emerging Markets Review, Elsevier, vol. 25(C), pages 163-175.
  • Handle: RePEc:eee:ememar:v:25:y:2015:i:c:p:163-175
    DOI: 10.1016/j.ememar.2015.08.002

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    References listed on IDEAS

    1. Kyuil Chung & Hail Park & Hyun Song Shin, 2012. "Mitigating Systemic Spillovers from Currency Hedging," National Institute Economic Review, National Institute of Economic and Social Research, vol. 221(1), pages 44-56, July.
    2. Lukas Menkhoff & Lucio Sarno & Maik Schmeling & Andreas Schrimpf, 2012. "Carry Trades and Global Foreign Exchange Volatility," Journal of Finance, American Finance Association, vol. 67(2), pages 681-718, April.
    3. Gyntelberg, Jacob & Loretan, Mico & Subhanij, Tientip & Chan, Eric, 2014. "Exchange rate fluctuations and international portfolio rebalancing," Emerging Markets Review, Elsevier, vol. 18(C), pages 34-44.
    4. Hail Park, 2015. "Dislocations in the Currency Swap and Interest Rate Swap Markets: The Case of Korea," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(5), pages 455-475, May.
    5. Naohiko Baba & Ilhyock Shim, 2014. "Dislocations In The Won‐Dollar Swap Markets During The Crisis Of 2007–2009," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 19(4), pages 279-302, October.
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    Cited by:

    1. repec:eee:jimfin:v:90:y:2019:i:c:p:175-186 is not listed on IDEAS
    2. repec:sph:rjedep:v:7:y:2018:i:4:p:29-42 is not listed on IDEAS
    3. Gajewski, Krzysztof & Jara, Alejandro & Kang, Yujin & Mok, Junghwan & Moreno, David & Serwa, Dobromił, 2019. "International spillovers of monetary policy: Lessons from Chile, Korea, and Poland," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 175-186.
    4. repec:eee:reveco:v:50:y:2017:i:c:p:23-48 is not listed on IDEAS

    More about this item


    Foreign exchange liquidity mismatch; Exchange rate volatility; Capital flows; Macro-prudential measures; Dollar funding market;

    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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