Average Monthly 93.7 Billion from July to November... High Response from Small and Medium Enterprises
[Sejong=Asia Economy Reporter Kwon Haeyoung] As the volatility in the foreign exchange market increases due to the resurgence of COVID-19 and the possibility of interest rate hikes in major countries such as the United States, exchange rate fluctuation insurance, regarded as a safety net for export companies, is gaining attention.
According to the Korea Trade Insurance Corporation on the 20th, the average monthly subscription amount for exchange rate fluctuation insurance by K-sure more than doubled from 45.7 billion KRW in the first half of this year to 93.7 billion KRW from July to November. In particular, in August, the subscription amount reached 114.2 billion KRW, marking the highest this year.
Exchange rate fluctuation insurance is a trade insurance system that supports domestic companies conducting trade transactions in foreign currencies such as the dollar to prepare for losses that may occur due to exchange rate fluctuations. Export companies typically gain profits (exchange gains) when the exchange rate rises as the export amount converted to KRW increases, and incur losses (exchange losses) when the exchange rate falls as the export amount converted to KRW decreases. Exchange rate fluctuation insurance functions to eliminate such uncertainties.
After a company signs an export contract, it subscribes to the insurance, and if the exchange rate at the time of payment of the export amount falls below the pre-agreed guaranteed exchange rate causing exchange losses, K-sure compensates with insurance payments. Conversely, exchange gains due to exchange rate increases are paid back to K-sure as recovery payments.
In particular, unlike forward exchange contracts from commercial financial institutions, exchange rate fluctuation insurance does not require margin deposits and has low premiums, making it highly favored by small and medium-sized enterprises (SMEs) and mid-sized companies with relatively limited financial capacity. From January to November this year, 229 SMEs and mid-sized companies hedged exchange rate risks through this insurance and received about 7.5 billion KRW in insurance payments for exchange losses.
K-sure also introduced the 'Exchange Rate Fluctuation Insurance Simulation Subscription Service' in August. It is an online program that allows individual companies to virtually experience exchange rate fluctuation insurance based on past exchange rates. This simulation enables export SMEs and mid-sized companies to immediately check the insurance payments they would receive and the recovery payments they would have to make when subscribing to exchange rate fluctuation insurance, thereby enhancing understanding of the system.
Yoon Jongbae, Head of the SME and Mid-sized Business Division at K-sure, said, "Due to uncertainties in the global economic and trade environment, exchange rate volatility is expected to increase. By hedging exchange rate risks at a level that secures an appropriate margin for each company, external variables can be reduced, allowing active exports to continue."
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