Forex Blog: Currency Trading News & Analysis.

March 17th 2005

South Korean Won subject to manipulation?

Some people believe foreign exchange markets are too big to be manipulated. Not so, says South Korea. It believes American hedge funds are responsible for the Won’s recent appreciation. South Korea has experienced net positive foreign capital inflows for quite some time. Hedge funds have been pouring capital into South Korea, hoping to simultaneously profit from the Won’s appreciation and the appreciation of South Korean equities. The hedge funds have also increased their purchase of non-deliverable forward contracts of Won. According to South Korea, this proves that speculators are the main culprit in the Won’s strengthening.

To prevent further appreciation, South Korea announced that it will intervene, by selling $5 Billion worth of special foreign exchange stabilization bonds. However, economists fear this will only accelerate the Won’s appreciation. The reason is investors will probably not be deterred from buying Won, expecting that it will continue on its tear after the effects of the stabilization effort wear off. The Korea Times reports:

The government is trying to control the foreign exchange rate by intervening in the market to enjoy short-term economic growth, which leads foreign investors to believe that the won-dollar rate will further decline.

Read More: Korean Won Falls Prey to Foreign Hedge Funds

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Posted by Adam Kritzer | in Exotic Currencies | No Comments »

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