• Journal of Distribution Science
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• v.13 no.2
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• pp.15-24
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• 2015

Purpose - Foreign exchange risk control is in an important component in the international supply chain management. This study shows the importance of the reference period in forecasting future exchange rates with a specific illustration of KIKO currency option contracts, and suggests feasible preventive measures. Research design, data, and methodology - Using monthly Won-Dollar exchange rate data for January 1995~July 2007, I evaluate the statistical characteristics of the exchange rate for two sub-periods; 1) a shorter period after the East Asian financial crisis and 2) a longer period including the financial crisis. The key instrument of analysis is the basic normal distribution theory. Results - The difference in the reference period could lead to an unexpected development in contract implementation and a consequent financial loss. We may avoid foreign exchange loss by using derivatives such as forwards or currency options. Conclusions - We should consider not only level values but also the volatilities of financial variables in making a binding financial contract. Appropriate measures may differ depending on the specific supply chain pattern. We may extend the study with surveys on actual risk measures.

• IE interfaces
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• v.21 no.4
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• pp.385-393
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• 2008

Corporate's survival or bankruptcy has been determined by interaction of macroeconomic environment, industrial dynamic environment and internal process of corporate. This study attempts to examine financial factors' differences that have influence on corporate's survival or bankruptcy before and after foreign exchange crisis in Korea. The first previous empirical study that researched the cause of corporate's survival or bankruptcy in the financial ratios was attempted by Altman in 1968. Recently various survival analysis models have been published. In this paper, Multiple Discriminant Analysis model is used. We divide analytical periods into before and after foreign exchange crisis and sample randomly survival or bankruptcy firms for each period. Independent variables are financial ratios which represent growth, profitability, activity, liquidity and productivity. In conclusion, this paper examines hypothesis as "There are differences of significant financial factors before and after foreign exchange crisis."

• East Asian Economic Review
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• v.18 no.1
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• pp.3-27
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• 2014

This paper examines the effects of financial crises on the long memory volatility dependency of daily exchange returns focusing on the Asian crisis in 97-98 and the Global crisis in 08-09. By using the daily KRW-USD and JPY-USD exchange rates which have different trading regions and volumes, this paper first applies both the parametric FIGARCH model and the semi-parametric Local Whittle method to estimate the long memory volatility dependency of the daily returns and the temporally aggregated returns of the two exchange rates. Then it compares the effects of the two financial crises on the long memory volatility dependency of the daily returns. The estimation results reflect that the long memory volatility dependency of the KRW-USD is generally greater than that of the JPY-USD returns and the long memory dependency of the two returns appears to be invariant to temporal aggregation. And, the two financial crises appear to affect the volatility dynamics of all the returns by inducing greater long memory dependency in the volatility process of the exchange returns, but the degree of the effects of the two crises seems to be different on the exchange rates.

• The Journal of Asian Finance, Economics and Business
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• v.7 no.2
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• pp.157-168
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• 2020

Since the economic crisis sweeps across the world in 2008, the foreign direct investment of various countries has been greatly impacted. Therefore, this paper regards China as an example to analyze China's outward foreign direct investment patterns in terms of Asian financial markets with a panel data over the period 2003-2017. We mainly focus on the money market oriented outward foreign direct investment and foreign exchange market oriented outward foreign direct investment. Using the individual fixed effect model to conduct empirical analyses, the empirical findings indicate that China will reduce its foreign direct investment amount to a country with large money supply and China will increase its foreign direct investment amount to a country with large foreign exchange reserves. Furthermore, when a country has signed Free Trade Agreement with China, China will increase more foreign direct investment amount to these countries than that of a country who has not signed Free Trade Agreement with China. Moreover, the empirical findings indicate that no matter what the money market oriented outward foreign direct investment or foreign market oriented outward foreign direct investment, China will reduce its foreign direct investment amount to these Asian countries due to the global economic crisis.

• The Journal of Asian Finance, Economics and Business
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• v.8 no.3
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• pp.119-126
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• 2021

This study is to examine the foreign direct investment (FDI) response to real effective exchange rate volatility in Vietnam by using the vector autoregression model. The research data are quarterly frequency data in the period from 2004:Q1 to 2019:Q2. The data on real effective exchange rate were collected from the statistics of Bruegel (Europe) and FDI data were collected from the International Financial Statistics. The quantitative study was conducted with two steps: (1) measuring exchange rate volatility by the GARCH(1,1) method; and (2) examining the impact of exchange rate volatility on FDI in the context of the global financial crisis. The estimation results show that FDI responded significantly to real exchange rate volatility with the lag of 3 periods at the 5% significance level. The FDI response increased after the exchange rate volatility with the lag of 3 periods, and the impact extended to the lag of 6 periods, and then gradually stabilized. The research findings indicate that FDI in Vietnam responds positively and significantly to exchange rate volatility with the lag of 3 periods. Simultaneously, the negative impact of the global financial crisis in 2008 with the lag of 2 periods leads to a slight decrease in FDI inflows into Vietnam.

• Korea Trade Review
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• v.46 no.2
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• pp.19-38
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• 2021

This study aims to analyze the foreign asset leverage effect on Korean oil & gas companies' foreign profits and to maintain the appropriate foreign asset volume for reducing exchange risk. For a long time, large Korean companies, including oil companies, overheld foreign currency liabilities. For this reason, most large companies have been burdened to hedge exchange risk and this excess limit holding deteriorated total profit and reduced foreign currency asset management efficiency. Our paper proceeds in presenting a three-stage analysis considering diversified exchange risk factors through estimation on transformation of foreign transactions a/c including annual trends of foreign asset and industry specifics. We also supplement incomplete the estimation method through a practical hedging case investigation. Our research parts are differentiated on the analyzing four periods considering period-specifics The FER value of the oil firms ranged from -0.3 to +2.3 over the entire period. The results of the FER Value are volatile and irregular; those results do not represent the industry standard comparative index. The Korean oil firms are over the credit limit without accurate prediction and finance high interest rate funds from foreign-owned banks on the basis on a biased relationship. Since the IMF crisis, liabilities of global firms have decreased. Above all, oil firms need to finance a minimum limit without opportunity losses on the demand forecast and prepare for uncertainty in the market. To reduce exchange risk from the over-the-limit position, we must consider factors that affect the corporate exchange risk on the entire business process, including the contract phase.

• International Commerce and Information Review
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• v.15 no.3
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• pp.41-62
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• 2013

This paper, the accumulation of foreign exchange reserves in the financial systems of emerging markets mid-to long-term impact on how investigated. The accumulation of foreign exchange reserves in emerging markets is a highly effective means to prevent the recurrence of another financial crisis as well as to minimizing risks of financial crisis. By examining the economic effects of excessive accumulation of foreign exchange reserves on factors such as foreign liabilities, domestic consumption, domestic investment and economic growth from a mid-to long-term perspective, it reduced domestic consumption, but on the other hand, led to the expansion of the trade-related industries based on increase of exports. Although China implements a policy to substantially increase domestic investment, other emerging market countries have stagnant domestic investment activities due to excessive accumulation of foreign exchange reserves. Such fact signifies that excessive accumulation of foreign exchange reserves increases potential risks by depressing the mid-to long-term economic growth through the scale down of trade-related industries.

• Journal of Korea Port Economic Association
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• v.31 no.2
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• pp.103-114
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• 2015

The exchange rate volatility during the global financial crisis in 2007-2009 led Korean shipbuilding companies to face currency risk. The use of foreign currency derivatives to take a risk in financial exposure affects them significantly. This research analyzes how the use of foreign currency derivatives affects the Korean shipbuilding industry in relation to its foreign sales by company type and over time, especially before and after the crisis period. It is based on statistical data presented by KOSHIPA and KOSIC in 2001-2014. The results of the analysis show that there is a significant relationship between foreign currency derivatives and foreign currency exposure for all firm sizes and years, but no relationship between them overtime.

• Korea Trade Review
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• v.42 no.4
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• pp.1-20
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• 2017

This study is to investigate the dynamic relationship between international capital flows and won exchange rate to the major currency in Korea. As the results of Granger causality test, international capital flows Granger-cause currency rate volatility in the short term. However, over time, won exchange rate volatility Granger-cause international capital flows in Korea. According to the results by period divided based on 2008 financial crisis, international capital flows have the significant effects on won-dollar exchange rate volatility before 2008 crisis although currency rate volatility Granger-cause international capital flows after the crisis. As the results of impulse-response function of the basis of VAR, foreign exchange rate volatility has no connection with international capital flows before the crisis while it doesn't after. After the crisis, currency rate volatility has promoted international capital flows, while its influence diminishes as time passes. As these results, the uncertainty of foreign exchange market tend to influence the international capital flows rather than vice versa in Korea. Thus, it would be a more effective policy to control the uncertainty of market than the direct restrictions international capital flows.

• Journal of Distribution Science
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• v.14 no.12
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• pp.79-87
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• 2016

Purpose - Since 1990, the sudden stop in capital flows has caused the economic crisis. The purpose of this research is to suggest the policy measures to mitigate the risk of the sudden stop in capital flows. To this end, we examine the theoretical framework and analyze the case study for countries which are faced with the sudden stop. Also we examine the structural problems of the foreign exchange market in Korea and derive the policy implications to prevent the sudden stop. Research design, data, and methodology - The criteria of whether the sudden stop in capital flows occurs are based upon Calvo et al. (2008). In case the proxy variable for the balance of capital account decreases from the average by over twice standard deviation, we determine that the sudden stop occurs for that country. The sample period is from January 1990 to December 2008, as in Calvo (2014). The sample countries are 17 developed countries and 19 emerging market countries, which are different from those of the previous papers as Agosin and Huaita (2012), and Calvo (2014). When the exchange market pressure index(EMPI) is deviated from the average by over three times standard deviation, we determine that the foreign exchange market is unstable for that country. Results - We find that the characteristics of the sudden stop in capital flows are the bunching or contagion among countries, the rapid drop in real effective exchange rate, and the huge decrease in foreign exchange reserves. Many countries tried to increase foreign exchange reserves and regulate capital flows. Also the foreign exchange market in Korea are found to be the volatile exchange rate, the vulnerable external debt and careless management of the foreign exchange derivatives transaction risk. Conclusions - To lessen the risk in the sudden stop of capital flows, this research suggests the some useful policy measures. To enhance the foreign exchange and distribution market stability, we should improve the price mechanism of exchange rate, hold the appropriate level of foreign exchange reserves, prevent excessive inflows of foreign exchange and promote sound transactions of foreign exchange derivatives.