Author: Min Kim(Bank of Korea), Ju Hyun Pyun(Korea Univ.)

<Abstract>

This study investigates how Korean export- and import-oriented firms adjust their spot foreign exchange (FX) transactions in response to exchange rate movements, with a specific focus on their lead-lag behavior-meaning whether they choose to delay (lag) or advance (lead) the timing of their spot FX sales and purchases. Utilizing a structural VAR model with block exogeneity, we find that increased exchange rate volatility leads to a reduction in firms' spot FX sales while simultaneously increasing their foreign-currency deposit balances. Specifically, exporting firms showed a decrease in spot FX sales, whereas importing firms exhibited a reduction in spot FX purchases in response to heightened FX volatility. Although these spot FX transactions do not significantly affect exchange rate volatility, the accumulation of foreign currency deposits helps to reduce the volatility. These findings indicate that the micro-level hedging and timing strategies employed by individual firms can serve as a buffer, mitigating exchange rate volatility and thereby contributing to macroeconomic stability.