Supply stimulation of US$8 billion worth of shipbuilders’ volumes in the domestic exchange rate
(Sejong = Yonhap Infomax) Correspondent Choi Jin-woo = The Ministry of Strategy and Finance announced on the 25th that the foreign exchange authorities are pursuing the direct purchase of forward exchange sales of shipbuilding companies in case of a purchase limit of commercial banks and the Export -Import Bank insufficient.
Shipbuilders usually receive orders in a distributed manner over a long period of time. If the USD-KRW exchange rate at the point of payment acceptance (selling in USD) is later than at the time of order acceptance, an exchange rate loss occurs.
Accordingly, shipbuilders avoid risk by selling dollars in advance (selling forward exchanges).
When shipbuilders place an order to sell forwards, the bank borrows dollars from the foreign exchange market and sells dollars in the foreign exchange market. As the dollar is supplied to the foreign exchange market, the dollar-earned exchange rate will decrease.
The recent increase in shipbuilding orders has led to an increase in forward sales.
In the midst of this, due to the increase in the dollar-earned exchange rate, the amount of KRW-converted exchange for existing forward exchange transactions has increased.
The credit limit that the bank can accept for advance sales has been temporarily exhausted.
Accordingly, the foreign exchange authorities intend to review the general credit limit of banks and encourage the expansion of the forward exchange purchase limit of existing banks.
Existing banks alone are not enough to absorb what Eximbank, a monetary policy institution, expands the credit limit for shipbuilders.
If even this is not sufficient, the foreign exchange authorities will purchase forward exchanges directly from shipbuilders through the foreign exchange balance management fund.
The foreign exchange authorities buy forwards directly from shipbuilders and sell forwards in the foreign exchange market through banks. We can expect a reduction in the exchange rate, but it will not affect the reduction in foreign currency reserves.
The foreign exchange authority explained, “Through this, forward exchange sales volume worth US$8 billion by shipbuilders by the end of the year will lead to a supply of additional dollars to the domestic foreign exchange market.”
jwchoi@yna.co.kr
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This article was submitted at 10:02 on the Infomax financial information terminal.
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