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KRW/USD Exchange Rate Volatility and Efficient Risk Management

Author

Listed:
  • Joo, Sang-Yong

    (Sejong University)

  • Chung, Chae-Shick

    (Korea Institute for International Economic Policy)

  • Lee, Young-Woo

    (Korea Institute for International Economic Policy)

Abstract

This thesis analyzes the relationship between the exchange rate of Korean Won and US dollar and the amount of foreign exchange, and studies the direction of the amendment of the risk control of foreign exchange. The GARCH (Generalized Auto Regressive Conditional Heteroscedasticity) model which visually embodies the auto-regress of the wave of exchange rate shows that the amount of trade will enhance the fluidity of the exchange rate, that is, the various expects of the participators of the market affect the amount of trade and the fluidity, so in the process of trading, the trader who is in the dry tree of information bears more trading expenditure. It is predicted that the liberalization of foreign exchange rate and fluctuated exchange rate system will jointly bring the enhancement of the fluidity of the exchange rate and the amount of exchange trade. The change of this system will bring the rise of participators in foreign exchange market; meanwhile, it will also initiate superfluous fluidity of foreign exchange market. In order to overcome this problem, the government needs to implement the development strategy of the understructure of the foreign exchange market and the enterprises need to carry through systemic exchange rate risk control.

Suggested Citation

  • Joo, Sang-Yong & Chung, Chae-Shick & Lee, Young-Woo, 1999. "KRW/USD Exchange Rate Volatility and Efficient Risk Management," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 3(1), pages 81-101, March.
    • Handle: RePEc:ris:eaerev:0284
    DOI: 10.11644/KIEP.JEAI.1999.3.1.38
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    More about this item

    Keywords

    Exchange Rate; Won; Dollar; GARCH Model;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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