South Korea, which is the fourth largest economy in Asia, said that capital flows in and out with sharp it did not make the economy became established and in fact led to the decline, the Wall Street Journal reported.
Reducing foreign funds through bank borrowings and the use of unnecessary loans in foreign currency will greatly help solve the problems that occur repeatedly for a long time, local authorities said.
The currency is vulnerable, including the South Korean won, made it difficult to exporters and creating market instability. Won more prone to currency movements than others in giving directions, and foreign investors often use it as a determinant of influence in the Asian economies and in risk sentiment, the Journal said.
Local banks have to adjust their currency positions to the front, which includes all derivatives such as currency swaps, to 50% of their capital is calculated at the end of the previous month.
Foreign banks operating in that country that its capital position of the average 300% since late April, had to reduce its position to 250% of their capital.
Local Authority will adjust the ceiling of such trade on a quarterly basis to determine the results of recent research on economic and market conditions.
Today, local or foreign banks must adjust their net position in the market spot and forward currency becomes 50% of their capital. Consequently, banks can take very large positions in forward markets, if they take a balancing position in the spot market.
Vulnerable Won Forward Market
Built large positions in the forward market will make the won sometimes become vulnerable to a big increase because banks and Korean companies adjust their openness during the volatility.
To reduce the burden that may occur with the implementation of new regulations on banks, local authorities will provide a grace period of three months. If they exceed the position limit set by the new regulations on existing transactions, the authority will allow the banks to extend their positions until two years into the future.
Current limit of forward transactions for companies, especially exporters and importers, with 125% of actual demand will be reduced to 100%.
While authorities expect more demand for loans in foreign currencies amid expectations for economic recovery and there is disparity in the rates of local and foreign, they will only allow borrowing in foreign currencies for use abroad.
The announcement stressed that the government has denied market speculation that says that the step was taken in tentah effort to keep the won value does not rise against the dollar to help local economies that depend on exports
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