Reply #24: Korea lost about W3tr in currency derivatives

[UpInArms]

http://www.koreaherald.co.kr/SITE/data/html_dir/2005/04/14/200504140023.asp

Government intervention in the currency market has resulted in a loss of about 3 trillion won ($2.96 billion), Finance Minister Han Duck-soo told the National Assembly yesterday.

The loss, said Han, resulted from foreign exchange derivatives.

A derivative is a financial contract such as options, in which a buyer profits or loses on the future movement of a currency.

The financial minister said the loss should be considered part of the costs of government intervention to stabilize the foreign exchange rate.

"Costs from interest rate gaps, foreign currency transaction loss or burden from derivatives trading, all these form the costs resulting from which policy the government adopts," said Han.

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The government has intervened heavily in currency markets since 2003 to control the won's appreciation against the dollar. A strong local currency threatens the price competitiveness of Korean exports, which have propped up the economy the last two years.

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Minister Stresses Currency Stability

http://times.hankooki.com/lpage/200504/kt2005041317313410160.htm

Finance-Economy Minister Han Duck-soo said that the government is willing to take costs to curb further rises in the won against the dollar, indicating that it will continue to intervene in the currency market in the future, if necessary.

Han told a session of the National Assembly that the government needs to shoulder costs associated with the intervention as it should help prevent exports from losing momentum.

``All nations rely on smoothing operations when foreign exchange rates do not reflect economic fundamentals,’’ Han said.

``Intervention costs are inevitable. It’s also impossible to carry out smoothing operations without such costs,’’ he added. ``The government will maintain its current foreign exchange policy.’’

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