Won-Dollar Exchange Rate Plummets 15.3 Won... Impact of National Pension Foreign Exchange Swap

The dealing room of Hana Bank headquarters in Myeongdong, Seoul on the 13th [Image source=Yonhap News]

The won-dollar exchange rate plummeted by more than 15 won following news of a foreign exchange swap between the foreign exchange authorities and the National Pension Service.

On the 13th, in the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,310.4 won, down 15.3 won from the previous day.

The exchange rate opened at 1,323.0 won, down 2.7 won from the previous day, and fluctuated within a narrow range before sharply falling around 11 a.m. when news of the foreign exchange swap involving the Bank of Korea, the Ministry of Strategy and Finance, and the National Pension Service was announced.

Compared to the previous day's closing rate of 1,325.7 won, which set a new yearly high, this represents a clear downward trend.

During the day, the exchange rate dropped to as low as 1,308.1 won before barely recovering to the 1,310 level.

The foreign exchange authorities and the National Pension Service agreed to conduct foreign exchange swap transactions within a limit of 35 billion dollars until the end of this year. The maturity for each transaction is either 6 months or 12 months, the same as last year.

A foreign exchange swap is a contract that uses currency exchange to provide short-term liquidity. When the National Pension Service has foreign exchange demand for overseas investments, instead of purchasing dollars on the market, it procures dollars held by the Bank of Korea to make investments.

The foreign exchange authorities and the National Pension Service expect this to mitigate exchange rate fluctuation risks and improve the efficiency of foreign currency fund management.