South Korea won at six-year low, possible swap deal with US, China

Feb 29, 2016 (LBO) – South Korea’s Finance Ministry is to resume a possible currency swap deal with the United States and China following the won’s recent fall.

The won closed at a fresh six-year low of 1,238.8 won against the US dollar last week after its record-breaking decline since the first two months of the year.

South Korea’s daily volatility of the won-dollar exchange rate has also hit a near six-year high this month.

South Korea’s Finance Minister Yoo Il-ho said yesterday that he is keeping close tabs on the foreign exchange market as the Korean currency has faced increasing volatility amid global financial instability.

Analysts said South Korea’s government is currently intervening in the foreign exchange market to counter currency volatility.

Finance Minister Yoo said the country will start fresh talks for a currency swap with the United States.

The United States and South Korea agreed on a 30 billion US dollar currency swap deal in the midst of the 2008 global financial crisis which was expired in 2010.

Last week the Minister met Chinese central bank chief for negotiations to extend a 64 trillion won currency swap with China which is scheduled to conclude in 2017.

A currency swap is a foreign exchange derivative between two countries to exchange the principal and/or interest payments of a loan in one currency for equivalent amounts, in net present value terms, in another currency.

Currency swaps are motivated by comparative advantage and they are over-the-counter derivatives.