Many countries were hit hard by the global financial crisis of 2008. Korea was no exception. With global liquidity quickly drying up, Korean banks failed to roll-over their dollar debt, the value of Korean won nose-dived against the U.S. dollar, and the size of foreign exchange reserve plummeted in the process of intervention.

At first glance, the reason behind this acute foreign exchange liquidity crisis is not very different from the one we experienced during the Asian crisis, back in the late 1990s. Korean Banks had huge dollar debt, mostly in short-term. At second look, however, there are fundamental differences. Back then, the crisis was triggered, in large part, by local problems. This time, the crisis originated outside of Korea, triggered by problems in other countries. The nature of excessive short-term dollar borrowing is also quite different. Back then, it was to support Korean corporations. This time, it was to square the long dollar position Korean banks entered when it purchased dollar forwards from the Korean ship manufacturers and Korean overseas portfolio investors that were hedging against the possibility of Korean won appreciating. In other words, FX risk management using FX derivatives was at the heart of the crisis.

Against this backdrop, in this research, I ask two important questions. First, why were forward buyers virtually absent during the pre-crisis period? More specifically, I ask why firms importing raw materials were not hedging against FX risk using forward buy contracts. If they did, sufficiently enough to offset the forward sell contracts, Korean banks would not have borrowed so heavily to square their positions, and Korea could have escaped from the crisis. Secondly, I ask if the ship builders that were entering forward sell contracts over-hedged their risk exposure. If they did, that could be one factor that exacerbated the crisis.

Regarding the first question, my empirical work gives two interesting results. First, firms importing raw materials are often also exporters, where a large part of their foreign exchange losses from higher import prices are offset by their increased export revenues. In other words, their transaction or translation losses are netted out by their economic gains, thus making it unnecessary to enter forward buy contracts. Second, in the case of oil refineries that import crude oil, I find that their domestic gas prices are negatively correlated with the value of Korean won against the U.S. dollar. This provides extra cushion to absorb losses from higher import prices, again making it unnecessary to use derivatives to hedge.

Regarding the second question, I investigate the three major ship builders and find some evidence of over-hedging. When the underlying exposures are estimated conservatively, one firm had a hedge ratio of 120 percent. Also, there is a firm where the fraction of speculative forward sell contracts takes up 5-10 percent of the total. These findings support the recent government move to lower the hedge ratio limit from 125 percent to 100.

This research also explores and identifies the future risks in the Korean foreign exchange market. Foreign fixed income investment, which is growing rapidly in recent years, is usually hedged in the off-share market, known as the NDF market. Korean banks also participate in this market and take short dollar positions. If Korean ship builders and overseas portfolio investors reemerge as major forward sellers, Korean banks will have more room to take short dollar positions against foreign fixed income investors. Although banks’ FX position will be squared and free from FX risk, a build-up of long position against residents and a build-up of short position against non-residents can be a source of systemic risk. This is because, in the event of sharp depreciation of Korean won, residents who are in short position must make dollar payments to nonresidents in long position. There would be a sudden capital outflow in the financial derivatives account. The problem is that it would not stop there. Sudden capital outflow can further depreciate the currency, which can then trigger another round of capital outflows. In an extreme case, this spiral effect can cause another FX liquidity crisis.

This prediction is not without any empirical basis. If one carefully investigates the 2008 balance of payments account, Korea experienced a huge capital outflow in its financial derivatives account. Thanks to the minimal presence of foreign fixed income investment back in 2008, most of the outflows were offset by inflows in the same account. But, things can be very different next time when the size of foreign fixed income investment is much larger. Therefore, this research calls for the government to closely monitor banks’ FX derivatives transactions and review the possibility of setting a limit on the aggregate amount of net short positions again nonresidents.

요 약

제1장 서 론

제2장 외화유동성 위기의 전개과정과 원인
　제1절 외화유동성 위기의 전개과정
　　1. 각 투자수지계정의 변화
　　2. 총외채의 구성과 단기외채 비중의 변화
　　3. 환율, 외환보유액 그리고 외환시장압력지수의 움직임
　　4. CDS 프리미엄과 무위험금리평형으로부터의 괴리
　제2절 외화유동성 위기의 원인
　　1. 통화선도 매각과 단기외화차입
　　2. 외환시장 개입과 일방적인 기대
　　3. 외은지점의 과다한 외화차입
　　4. 낙인효과
　제3절 종 합

제3장 상장 비금융회사들의 거래적·환산적 환노출규모 추정
　제1절 방법론
　　1. 환위험의 개념
　　2. 환차손익
　　3. 외국환종합포지션
　제2절 표본과 자료출처
　제3절 분석 결과
　　1. 환차손 규모와 원/달러 환율 추이
　　2. 환차손 상위 20개 상장 비금융회사들의 외국환종합포지션

제4장 통화선도 매입거래 부족의 원인
　제1절 경제적 환노출 분석 I (정유회사 분석)
　　1. 방법론
　　2. 표본과 자료출처
　　3. 분석 결과
　　4. 시사점과 분석의 한계
　제2절 경제적 환노출 분석 II (환차손과 매출총이익 분석)
　　1. 방법론
　　2. 표본과 자료출처
　　3. 분석 결과
　　4. 시사점

제5장 통화선도 매도거래의 적정성 검토
　제1절 방법론
　　1. 외국환 종합포지션
　　2. 통화선도 매각에 따른 손실규모
　　3. 환 헤지 비율
　　4. 매매목적 거래
　제2절 표본과 자료출처
　제3절 분석 결과
　　1. 외국환종합포지션
　　2. 파생상품 관련 손실규모
　　3. 환 헤지 비율
　　4. 매매목적의 파생상품거래

제6장 정책적 시사점과 전망
　제1절 정책적 시사점
　제2절 전 망

참고문헌

[부록] 외국환은행의 외환포지션 조정

ABSTRACT