Over the past three years, while outstanding balances of foreign exchange and over-the-counter derivatives transactions in the global market rose 34%, Korea saw only a 1% increase. After the U.S. released its tariff policy, volatility in the foreign exchange market widened and currency-hedging transactions jumped worldwide, but in Korea, where the won-dollar exchange rate continued to rise, demand for hedging weakened as more investors sought profits from the rising rate.
According to the "2025 Triennial Central Bank Survey of Foreign Exchange and Over-the-counter Derivatives Markets (outstanding balances)" released by the Bank of Korea on the 12th, the global nominal outstanding balance of foreign exchange and OTC derivatives stood at $845.7 trillion at the end of June this year, up $213.6 trillion (33.8%) from the same period in 2022 ($632.1 trillion). The Bank for International Settlements (BIS) surveys these markets from Central Bank respondents every three years, and this year's outstanding balances posted the largest increase since 2007 (+130.8%).
By product, outstanding balances of FX derivatives rose 41.6% to $155.2 trillion. After the United States released its reciprocal tariff policy in April, global exchange-rate volatility widened, driving an increase in currency-hedging transactions. Currency hedging refers to agreeing in advance to trade foreign exchange at a preset rate to prevent losses from future exchange-rate fluctuations.
Interest rate derivatives rose 32.5% to $665.8 trillion. Transactions had shrunk three years ago due to the discontinuation of LIBOR, but they recovered as the newly introduced SOFR took hold in the market. The LIBOR rate is the benchmark applied when borrowing short-term funds in London, while the SOFR rate is the rate applied when raising funds overnight using U.S. Government Bonds as collateral.
The market value of global foreign exchange and OTC derivatives was $21.8 trillion, up $3.5 trillion (18.8%) from three years earlier. Market value is an indicator that sums the absolute values of gains and losses that would arise if outstanding foreign exchange and derivatives contracts as of the end of June were revalued at current market prices. At the time a contract is concluded, neither side has gains or losses, so the market value is "0," but when the price of the underlying asset changes, one side's gain becomes the other's loss, creating valuation gains or losses. The larger these valuation changes become, the greater the market value of the contract, so an increase in market value indicates heightened volatility.
However, growth in Korea's derivatives market slowed. Nominal outstanding balances of foreign exchange and derivatives were $1.9102 trillion, up $19.7 billion (1%) from three years earlier. Outstanding balances of FX derivatives were $959.1 billion, down 10.5%, while interest rate derivatives were $948.5 billion, up 16.4%. As a result, Korea's share of the global market was 0.23%, down 0.07 percentage points.
By market value as well, performance was weak. Korea's market value of foreign exchange and derivatives was $40.4 billion, down $27.3 billion (40.3%) from three years earlier. The market value of FX derivatives fell 46.7% to $32.9 billion, while the market value of interest rate derivatives rose 22.7% to $7.4 billion. Korea's share of global market value was 0.19%, down 0.18 percentage points from the previous survey (0.37%).
A Bank of Korea official said, "As the high exchange rate persisted, expectations of a further rise grew, so demand for currency hedging was not strong," and noted, "The inversion of the Korea-U.S. interest rate differential, which increased the interest that could be earned by holding dollars, also contributed to lower hedging demand."