FX funding risks and exchange rate volatility

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...

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Bibliographic Details
Published inEmerging markets review Vol. 25; pp. 163 - 175
Main Authors Ree, Jack Joo K., Yoon, Kyoungsoo, Park, Hail
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.12.2015
Elsevier BV
Subjects
Banking industry
Capital flows
Dollar funding market
Economic crisis
Exchange rate volatility
Foreign exchange liquidity mismatch
Foreign exchange rate risk
Hedging
Macro-prudential measures
Studies
South Korea
Foreign exchange liquidity mismatch
Exchange rate volatility
Capital flows
Macro-prudential measures
F31
G21
G01
G15
Dollar funding market
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Summary: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.
ISSN:1566-0141
1873-6173
DOI:10.1016/j.ememar.2015.08.002