The Impact of Exchange Rate Fluctuations on Korean Industry

The stabilization of exchange rate fluctuations is an important economic policy issue for an open, export-oriented country such as South Korea. The 1997 foreign exchange crisis and the 2008 global financial crisis put the Korean foreign exchange market in great turmoil, and the instability of the exchange rate resulting from those crises seriously affected the economy as a whole. In addition, more frequent fluctuations in the value of the Korean won are causing concerns about the negative impact on foreign trade. This uncertainty in the external sector is a very important variable that can influence decision-making by industries, companies and various stakeholders. As exchange rate fluctuations drew the attention of economists, they began to study their effects on macroeconomics using time series. However, recent analyses of exchange rate fluctuations have expanded to the firm level using corporate and industrial data. Meanwhile, major industrialized countries such as the U.S., Japan and the EU are trying to maintain monetary policy in a way that lowers or at least does not raise the value of their currencies for economic stability, economic recovery, and job creation. Many countries that suffer from currency appreciation and a current account deficit have been intervening in the foreign exchange market somewhat aggressively. And the debate about the legitimacy of these measures is intensifying. Countries around the world have engaged in a competition do devalue their currencies, and this trend is expected to accelerate amid creeping protectionism. For these reasons, the appreciation of the won is likely to persist over the long term, and concerns over the negative impact of this trend are also growing. This study explores the effect of exchange rates on the profitability of Korean companies and industries assuming the continued appreciation of the won.