Martial Arts "Export Companies Need to Manage Currency Risk Due to Exchange Rate Fluctuations"

[Asia Economy Reporter Hwang Yoon-joo] While 7 out of 10 domestic export companies expect an increase in exports next year, concerns about the deterioration of profit structures due to exchange rate fluctuations have also emerged.

According to the "Recent Export Companies' Exchange Rate Perception and Impact" report released on the 24th by the Korea International Trade Association's International Trade and Commerce Research Institute, which surveyed 801 domestic export companies, 71.3% of respondents anticipated an increase in exports next year. While companies have a positive outlook on exports next year, they identified "continued spread of COVID-19" (42.9%) and "intensified exchange rate fluctuations" (26.7%) as the biggest issues affecting the business environment in the coming year.

In particular, export companies responded that the average exchange rate for their 2021 business plans is 1,140 KRW per USD, and the optimal exchange rate to secure the best price competitiveness during exports is 1,167 KRW per USD. The breakeven exchange rate for exports was surveyed at 1,133 KRW per USD.

Additionally, companies with more than 50% of their payments settled in US dollars accounted for 91.4% of the total, indicating that most are exposed to exchange rate risk. Especially among small and medium-sized enterprises (SMEs) and mid-sized companies, the breakeven exchange rates were 1,133 KRW per USD and 1,135 KRW per USD respectively, higher than that of large companies (1,126 KRW per USD). However, 61.1% of SMEs and 33.9% of mid-sized companies responded that they "do not manage exchange rate risk," showing that smaller companies are more vulnerable to exchange rate risk. In contrast, only 8.9% of large companies reported not managing exchange rate risk.

Kang Sung-eun, a researcher at the Trade Association, said, "With rising expectations for expanded US economic stimulus and reduced uncertainty in the global market, the won's strength is likely to continue." He added, "As the exchange rate has been fluctuating around the low 1,110 KRW range recently, it is necessary to raise corporate awareness of exchange rate risk management and prepare related support measures in advance."