Instruments in the Market

  1. Financial Stability
  2. FX & Int'l Relations
  3. Foreign Exchange System
  4. Foreign Exchange Market
  5. Instruments in the Market

Instruments in the Market

Participants in the foreign exchange market buy and sell spots and trade foreign exchange derivatives such as forwards and foreign exchange swaps.

The daily-average turnover of foreign exchange transactions including spots and derivatives in the Korean foreign exchange market amounted to US$ 50.6 billion in 2017. After having decreased sharply in 2009 as a result of the global financial crisis, this volume has shown a rapid recovery and returned to its pre-crisis level of 2008. As of April 2016 the Korean market volume accounted for roughly 1.00% of total world market turnover (calculated using BIS statistics).

Foreign Exchange Turnover in Korea : Reported by Banks

(daily average, US$ 100 bil.)

Foreign Exchange Turnover in Korea
2011 2012 2013 2014 2015 2016 2017
Spots 19.1 18.0 18.3 17.5 20.0 19.4 19.6
Derivatives Total 27.7 27.4 27.9 27.7 28.5 29.0 31.0
Forwards 7.5 6.6 7.1 7.6 8.3 9.6 10.1
Fx Swaps 19.2 19.8 19.6 19.0 19.2 18.4 19.8
Currency Swaps 0.8 0.7 0.7 0.8 0.8 0.8 0.9
Currency Options 0.3 0.3 0.4 0.3 0.2 0.2 0.2
Total 46.8 45.4 46.1 45.3 48.4 48.4 50.6

Spots are FX sales transactions in which delivery is executed within two business days after the contract day. During 2017 the daily average spot turnover was US$ 19.6 billion, which was 38.7% of total FX sales in the Korean market. This proportion, which has been stable since 2010, is relatively high compared to the world market average of 32.6% in April 2016.

FX derivatives trading is increasing because of strong hedging demand in consequence of the improved understanding of FX risks and increased financial market volatility since the global financial crisis.

During 2017 the daily average turnover of forwards including NDF transactions was US$ 10.1 billion. This was 20% of total FX sales in the Korean market, a share higher than that in the world market (13.8% as of April 2016). The volume of forward transactions has increased since the allowing from April 1999 of NDF transactions, which make up almost 82% of the total volume of forwards turnover as one of the representative hedging tools used to avoid the risk of exchange rate fluctuations and to hedge the FX positions of banks.

The daily average FX swap turnover was US$ 19.8 billion in 2017. In recent days FX swaps have been widely used to manage the risk of exchange rate fluctuations in Korea, but the portion of FX swaps in total FX turnover (39.1%) is relatively low compared to the world average in April 2016 of 46.9%.

In 2017 the combined daily average turnover of the currency swaps and currency options traded in Korea was US$ 1.1 billion.

  1. Note : 1)A Non-Deliverable Forwards (NDF) transaction is a kind of forwards transaction in which only the difference between the contracted rate and the spot exchange on the due date (the fixing rate) is settled in US dollars, without delivery of the whole contracted principal. Currencies that have not yet been internationalized, like the Korean won, are mainly traded in the NDF markets, because in these markets it is possible to obtain exchange profits on non-internationalized local currencies without handling them directly.