The average daily foreign exchange transaction (spot and derivatives) amount at foreign exchange banks in the first quarter of this year was $102.65 billion, the highest on a quarterly basis since a statistical revamp in 2008, the Bank of Korea said on the 29th. Each of the first through third quarters last year set new quarterly highs, and the same trend is continuing this year. The Bank of Korea analyzed that this was because foreigners expanded their investments in domestic securities (listed stocks and bonds).
According to the first-quarter foreign exchange transaction trends at foreign exchange banks released by the Bank of Korea that day, spot foreign exchange transaction volume at foreign exchange banks was $42.39 billion, up 26.2% ($8.8 billion) from the previous quarter. Foreign exchange derivatives rose 18.1% ($9.23 billion) over the same period to $60.27 billion.
By bank, domestic banks' foreign exchange transaction volume was $46.2 billion, up 14% ($5.68 billion) from the previous quarter. Foreign bank branches was found at $56.45 billion, up 28% ($12.35 billion) over the same period.
The increase in foreign exchange transaction volume was due to an expansion in foreigners' investments in domestic stocks and bonds. According to the Financial Supervisory Service, the monthly average of foreign investors' domestic securities investment turnover (purchases and sales) rose from 475 trillion won in the fourth quarter of last year to 855 trillion won in the first quarter of this year.
As volatility in the won-dollar exchange rate against the U.S. dollar increased, banks also boosted foreign exchange derivatives transactions such as futures and swaps to reduce exposure to currency risk. The won-dollar exchange rate volatility rose from 0.37 in the fourth quarter of last year to 0.6 in the first quarter of this year. The won-dollar exchange rate climbed from 1,439 won at the end of last year to 1,530.1 won at the end of March this year.
There are also seasonal factors that increase foreign exchange transactions in the first quarter every year. With books closed at the end of the fiscal year, transactions shrink and then increase in the first quarter of the following year. Over the past five years, first-quarter foreign exchange transactions increased by an average of 13.9% from the previous quarter.