• The Korean Journal of Financial Management
• /
• v.25 no.4
• /
• pp.53-78
• /
• 2008

Foreign investors who invest in the Korean stock markets are exposed to two kinds of foreign exchange rate risk, the economic exposure and the translation exposure. The former is the foreign exchange rate exposure in return generating process of the assets invested and the latter is the foreign exchange rate exposure in the translation of domestic return into foreign investors' currency. Domestic investors, however, are exposed only to foreign exchange rate exposure in the asset invested. This different situation on foreign exchange rate exposure between foreign investors and domestic investors can induce different response to exchange rate change by investor groups. Previous studies on foreign exchange rate exposure of Korean firms reported that quite a few Korean firms are exposed to foreign exchange risks and suggested to manage the foreign exchange risks. Also, many studies on the market segmentation showed that a market can be practically segmented according to the characteristics of investor groups. These studies support the hypothesis that the Korean stock market can be practically segmented by the foreign investors' attitude to the foreign exchange rate exposure. This study examines the response of both foreign investors and domestic investors to the foreign exchange rate exposures in Korean stock markets. Test results show that foreign investors increase their sell transactions when the foreign exchange rate exposure of the previous day is negative. This result can be possible when foreign investors attempt to actively manage the decrease in value of their assets due to rising of exchange rate. Analysis on the sell order data is also supportive to this interpretation. Foreign investors also increase their buy transactions when the foreign exchange rate exposure of the previous day is negative. This result can be possible when foreign investors use actively the relation between the increase in asset value and the translation gain due to declining of exchange rate. Analyses on buy order data, however, do not show the same result as the analyses on transaction data. This difference may come from the difference of information contained in transaction data and order data. In summary, the result of the paper supports the hypothesis that foreign investors response differently to foreign exchange rate exposure compared with domestic, Korean investors. Two groups do not show different response when exchange rate exposure is positive, i.e., as foreign exchange rate is increase (decrease), the asset value is increase (decrease). However, foreign investors' response is different from that of domestic investors when exchange rate exposure is negative, i.e., as foreign exchange rate is increase (decrease), the asset value is decrease (increase). These results mean that foreign investors and domestic investors are placed in different situations related to foreign exchange rate exposure, and these differences are reflected in the Korean stock markets. And domestic investors need to consider foreign investors' different attitude to the foreign exchange rate exposure when they analysis foreign investors' trading behavior.

• The Journal of Asian Finance, Economics and Business
• /
• v.3 no.3
• /
• pp.57-65
• /
• 2016

The purpose of this paper is to investigate the volatility of both Islamic and conventional stock market in Indonesia with the aim of identifying the most appropriate model for risk management practice. The study considers GARCH as a genre of model to measure the volatility of stock market movement. The results support the view that each model shows specific volatility from both Islamic and conventional stock market in Indonesia. In Islamic stock market, volatility is affected by exchange rate and money supply (M1) but not interest rate as interest is prohibited in Islam. However, interest rate is found as a principal factor that affects volatility of conventional stock market. The outcomes of this paper are of particular significance to policy makers, as it provides guidelines to maintain economic health. Furthermore, the findings may assist practitioners to understand the consequences of macroeconomic factors such as exchange rate, money supply and interest rate, which are very crucial for the market stability of Indonesian stock market. The paper enhances the understanding of stock market volatility and proposes guidelines risk management practices.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
• /
• v.52
• /
• pp.25-44
• /
• 2011

Possibility of credit risk, foreign exchange risk and interest rate risk of exporter increases in the recent international Commercial transactions, due to financial crisis of Europe and liberalization of Middle East. Under this circumstance, Forfaiting is trade finance that forfaiter purchase negotiable debt instrument without recourse from exporter, which occurred related with international commercial transactions, and credit risk, contingency risk, foreign exchange risk and interest rate risk of exporter can be transferred to forfaiter. Forfaiting is typically medium-term finance(three to five years) concluded at fixed interest rate, although it can also arranged on a floating interest-bearing basis for periods from six months to ten years or more. But Forfaiting service of Korea has limitation as follows. First, forfaiting in Korea deals with unrestricted irrevocable documentary credit as debt instruments. Period that forfaiting is provided is short and amount of money is limited, compared with advanced forfaiting. But forfaiting provided in advanced countries deals with various methods such as guarantee for bill, payment guarantee, and can be resold in financial market. Recently importance of forfaiting is increasing in international commercial transactions. Therefore profound study on forfaiting is required. The study will examine the risk that happens to the concerned parties in forfaiting, and its management measures. The study adopted literature review method such as local and foreign books and papers about trade finance, internet information about forfaiting, and professional journal related with international finance.

• The Journal of Asian Finance, Economics and Business
• /
• v.8 no.3
• /
• pp.1-10
• /
• 2021

This study examines the dynamic pattern of the exchange rate volatilities of the ASEAN-5 currencies from January 2006 to August 2020. The exchange rates applied in this study comprise bilateral and effective exchange rates in order to investigate the influence of the US dollar on the stability of the ASEAN-5 currencies. Since a volatility model employed in this study is a natural cubic spline volatility model, the Monte Carlo simulation is consequently conducted to determine an appropriate criterion to select a number of quantile knots for this model. The simulation results reveal that, among four candidate criteria, Generalized Cross-Validation is a suitable criterion for modeling the ASEAN-5 exchange rate volatilities. The estimated volatilities showed the inconstant dynamic patterns reflecting the uncertain exchange rate risk arising in international transactions. The bilateral exchange rate volatilities of the ASEAN-5 currencies to the US dollar are more variable than their corresponding effective exchange rate volatilities, indicating the influence of the US dollar on the stability of the ASEAN-5 currencies. The findings of this study suggest that the natural cubic spline volatility model with the quantile knots selected by Generalized Cross-Validation is practical and can be used to examine the dynamic patterns of the financial volatility.

• International Commerce and Information Review
• /
• v.9 no.4
• /
• pp.107-125
• /
• 2007

With the rapidly increasing of Korean enterprises, the importance of foreign exchange(FX) risk management for the future operation generated from FDI contract is becoming the critical problem of international business. This type of FX risk, called as "economic exposure risk", requires us of the unique risk management principles and techniques. In this paper, we identify the properties of economic exchange rate exposure, analyze the identification and measurement processes of risk sources and strength, and perform the estimation of the main determinants and its profile effects of the invoicing currency for the efficient management of economic FX exposure.

• International Commerce and Information Review
• /
• v.7 no.3
• /
• pp.269-286
• /
• 2005

The exchange rate volatility has been increased since the time when the floating exchange rate system was introduced in Korea. As a result, the increase of the exchange rate volatility raised the risk in international trades in Korea. The purpose of this study in to study the feature of exchange rate volatility and the main sources of its increase and to confirm whether the exchange rate volatility influence export volume and price of Korea. In the first place, I measured exchange rate volatility with two methods. The one is descriptive statistic method such as the width of daily exchange rate fluctuation and the rate of exchange rate devaluation. The other is the time varying conditional variance of exchange rate. Then, I studied the sources of exchange rate volatility. In the second place, I defined the exchange rate volatility as the time varying conditional variance and estimated it by using elastic a approach model which shows exchange rate is affected by itself and its conditional variance, I estimated its effects on export volumes and prices of electric home appliances, information & communication equal and semi-conductor. The result of this study is as follows. With presumed result EU and Korea because is not the goods which is to substantial competition relationship, The effect where the relative value change of presumed result expression anger and the dollar of import and export function goes mad to the import and export of Korea the income compared to is to export and it is appearing a lot. The EU goods is sold more expensively the Korean goods than from about length being caused by American market of the dollar and the balance of trade of Korea is visible like being visible the improvement of single breadth. Because the relationship of competition is weak but substantially there is to a short term and expression - the effect where the dollar rate fluctuation is big in Korean trade there is a possibility of saying that widely known it is not.

• International Commerce and Information Review
• /
• v.13 no.4
• /
• pp.229-249
• /
• 2011

The exchange rate change has been increased since the time when the floating exchange rate system was introduced in Korea. As a result, the increase of the exchange rate changes raised the risk in international trades in Korea. Also after Bretton Woods System broke down, the increasing exchange rate fluctuation raised the risk in international trade. The purpose of this dissertation is to study whether this incomplete pass-through exists in Korean export industry and furthermore to measure the markup rate of the export price using real data since Global Financial Crisis. The estimation results of the export price determination model by Error Correction Model shows that the export price of Korea has been greatly influenced by the export prices and exchange rates against U.S. Dollar of rival countries, domestic producer price as well as the Korean Won-U.S. Dollar exchange rate and also business coincidence index of U.S. in demand. Particularly, the pass-through rate of Korean Won-U.S. Dollar exchange rate to export price is estimated to be incomplete, which contrasts with the propositions of traditional exchange rate determination approach, e. g. elasticity approach, monetary approach, etc.

• Proceedings of the Korean Institute of Building Construction Conference
• /
• 2010.05b
• /
• pp.103-108
• /
• 2010

The purpose of this study is to analyze of the risk factors for oversea plants construction projects. For this study, risk factors data from related literature review, research organization and construction company was researched and classified under each EPC phases. In addition, a questionnaire survey by plant experts was conducted for analysis of risk weight and costs and time impact on each EPC phases. The results of this study are as follows: First, a detail design errors(engineering phase), a equipment procurement plan(procurement phase), and exchange rate fluctuations(construction phase) were analyzed the highest weight factors. Second, a financing plan(engineering phase), quantity take-off bill(procurement phase), and exchange rate fluctuations(construction phase) were analyzed the highest cost impact factors. Third, detail design errors(engineering phase), a equipment procurement plan(procurement phase), and schedule management errors(construction phase) were analyzed the highest time impact factors.

• Journal of the Korean Regional Science Association
• /
• v.34 no.2
• /
• pp.65-77
• /
• 2018

The purpose of this study is to compare and analyze factors in country risk between Cambodia and Vietnam. OECD and the Export-Import Ban of Korea assess country risk of Cambodia more highly than Vietnam. As results of the parametric tests for evaluation factors on the basis of country risk classification, the economic growth rate, the foreign trade index, and the foreign exchange reserves among the economic risks with the corruption index as the political and social risk have statistically significant effect on the difference between country risks of two countries. However, discriminant factor analysis indicates that the economic growth rate, the foreign exchange reserves, and the corruption index are key variables, which represent the difference between country risks of Cambodia and Vietnam. Consequently, the government of Cambodia needs to try to root out the corruption and to expand trade through increasing export for lowering the country risk to the level of Vietnam. Vietnam would also need to focus on attaining the sustainable high economic growth rate and increasing the foreign exchange reserves.

• East Asian Economic Review
• /
• v.24 no.2
• /
• pp.165-184
• /
• 2020

Applying Ismailov and Rossi (2018), I newly construct the Korea FX uncertainty based on the density distribution of historical forecast errors. This uncertainty index properly captures the rare but significant events in the Korean currency market and provides information distinct from other uncertainty measures in recent studies. I show that 1) FX uncertainty arising from unexpected depreciation has a stronger impact on Korea-U.S. exchange rates and that 2) macro variables, such as capital flows or interest rate differentials, have predictive ability regarding Korea FX uncertainty for short horizons. These findings enable us to predict the events of sudden currency crashes and understand the Korea-U.S. exchange rate dynamics.