Koo Yun-cheol, Deputy Prime Minister for Economic Affairs and Minister of Economy and Finance, said on the 7th that "excessive expansion of exchange-rate volatility is not desirable for the Korean economy," adding, "We will not tolerate excessive volatility and one-way herd behavior."
Deputy Prime Minister Koo held an "emergency market situation review meeting" on the day with Bank of Korea Governor Shin Hyun-song, Financial Services Commission (FSC) Chair Lee Eog-weon, and Financial Supervisory Service Governor Lee Chan-jin, and stated accordingly regarding trends in the financial and foreign exchange markets.
Foreign exchange authorities cited speculative transactions and offshore non-deliverable forward (NDF) derivatives transactions conducted outside the market as the cause of the recent surge in the won-dollar exchange rate. With foreign investors' net selling of domestic stocks and rising tensions in the Middle East, speculative transactions also joined in, pushing up the won-dollar rate.
The Bank of Korea and the Financial Supervisory Service decided to check for and take action against any speculative moves or suspected market-disrupting acts in the foreign exchange market. The Seoul Foreign Exchange Market Code of Conduct prohibits transacting with the purpose of disrupting market functions or with the intent to move prices against customers' interests.
Foreign exchange authorities also plan to use the illegal foreign exchange transaction response team to investigate whether import and export corporations are taking advantage of the rising exchange rate to accelerate payment of import bills or excessively delay receipt of export proceeds. If exporting and importing corporations do not buy and sell dollars in a timely manner, dollar demand can be distorted and volatility in the won-dollar exchange rate can increase.
As offshore NDF derivatives transactions are affecting the foreign exchange market, the foreign exchange authorities plan to devise measures to absorb related transactions into the market.
The won-dollar exchange rate finished weekly transactions at 1,539.1 won on the 5th. However, in the night session that runs until 2 a.m. the next day, it rose intraday to as high as 1,561.5 won. That is the highest level since March 10, 2009 (1,561 won), during the global financial crisis.