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FX funding risks and exchange rate volatility

Jack Joo K. Ree, Kyoungsoo Yoon and Hail Park

Emerging Markets Review, 2015, vol. 25, issue C, 163-175

Abstract: This paper examines how exchange rate volatility and Korean banks' foreign exchange liquidity mismatches interacted with each other during the Global Financial Crisis, and whether the vulnerability stemming from this interaction has been reduced since then. Structural and cyclical changes after the crisis, including decreasing demand for currency hedges and the diversifying investor base for bonds, point to a possible weakening of the interaction mechanism; and we find evidence that is strongly supportive of this.

Keywords: Foreign exchange liquidity mismatch; Exchange rate volatility; Capital flows; Macro-prudential measures; Dollar funding market (search for similar items in EconPapers)
JEL-codes: F31 G01 G15 G21 (search for similar items in EconPapers)
Date: 2015
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