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Currency Rate Amid Sudden Economic Ambush

Posted February. 22, 2005 22:48,   


The currency rate of the won against the US dollar has plummeted to the lowest level since the 1997 financial crisis, causing appreciation of the won. In addition, the financial market fluctuated with skyrocketing stock prices and plummeting interest rates due to the depreciation of the currency rate. On February 22, the won-dollar currency rate closed the market with a drop of 17.2 won to 1,006.1 won, compared to that of the previous day in the Seoul foreign exchange market. This means that the selling rate for the dollar dropped below 1,000 won, the lowest level in seven years and three months since November 10, 1997, when it hit 999 won. The won-dollar rate starting at 1,023.2 won dropped immediately afterward, hitting below the range of 1,020 won and 1,010 won.

The foreign exchange authorities intervened in the market to prevent a currency crash, but the volume of purchases for the dollar was not big. Related officials in the foreign exchange market explained, “With a small buy out, the exchange rate plummeted as foreigners’ stock investment capital and companies’ export payments were continuously offered on the market.”

The yen-dollar currency rate fell from the range of 105 yen to that of 104 yen within a week, partially causing the lower won-dollar currency rate. As a result, one dollar is exchanged for less than 1,000 won in commercial banks. In addition, the Korea Composite Stock Price Index, or KOSPI, dropped 10.91 points (1.10 percent) compared to the day before, reaching 977.80. The KOSDAQ Composite Index fell 13.78 (2.70 percent) to 494.83.

In the bond market, interest rates rose significantly as the government came up with a prospect that it will issue more treasury bonds for stabilizing the currency rate. The interest rate for three-year treasury bonds, or the benchmark interest rate, increased 0.04 percent to 4.22 percent a year.

Meanwhile, the news startled the overall industries, especially those highly dependent on exports, due to the plummeting currency rate. The exporting companies accept the fact that the won-dollar rate in the 1,000 range is dropping, and are struggling to reduce the exchange risk by settling more with the euro and entering into forward exchange contracts.

Kyung-Joon Chung Jae-Yun Jung news91@donga.com jaeyuna@donga.com