Bank of Korea's 'Q2 Foreign Exchange Transaction Trends'
Daily Average Foreign Exchange Transactions Decrease by $1.61 Billion
Impact of Reduced Exchange Rate Volatility
The average daily foreign exchange trading volume in the second quarter decreased compared to the first quarter due to reduced exchange rate volatility.
According to the "Foreign Exchange Trading Trends of Foreign Exchange Banks in the Second Quarter" report released by the Bank of Korea on the 23rd, the average daily foreign exchange trading volume (spot exchange and foreign exchange derivatives) of foreign exchange banks in the second quarter of this year was $67.78 billion, down 2.3% ($1.61 billion) from the previous quarter. The foreign exchange trading volume in the first quarter was $69.4 billion, marking the largest scale since statistics compilation began in 2008. In the first quarter, seasonal factors due to year-end book closing, along with increased securities investment by Seohak Gaemi (resident overseas investors) and foreigners, contributed to the record high volume.
In the second quarter, the reduction in exchange rate volatility is interpreted as the reason for the decrease in foreign exchange trading volume. The daily exchange rate volatility of the KRW-USD was 0.5% in 2022, 0.47% in 2023, and 0.32% in the first quarter of this year. In the second quarter, it showed a low volatility rate of 0.37%.
An Joo-eun, head of the Capital Movement Analysis Team at the Bank of Korea's International Department, explained, "Generally, when exchange rate volatility increases, opportunities to profit from rapid price changes increase, leading to higher demand for exchange rate hedging. In the second quarter, the lower exchange rate volatility compared to last year and the year before led to a decrease in foreign exchange trading volume."
By product, spot exchange trading volume was $24.62 billion, down 5.7% ($1.5 billion) from the previous quarter. Foreign exchange derivatives trading volume was $43.17 billion, down 0.3% ($110 million) from the previous quarter.
Looking at spot exchange trading by currency, KRW-CNY trading volume decreased the most. KRW-USD trading volume was $18.93 billion, up 0.4%, maintaining the previous quarter's level. In contrast, KRW-CNY trading volume was $1.76 billion, down 48.6% (-$1.66 billion) from the previous quarter. The KRW-CNY exchange rate volatility decreased from 0.39% in 2022 to 0.37% in 2023, and 0.26% in the first quarter of this year, before slightly increasing to 0.32% in the second quarter.
An explained, "In addition to the reduction in exchange rate volatility, the decrease in overseas investment by Seohak Gaemi (resident overseas investors) and foreign securities trading compared to the first quarter also contributed to the reduction in spot exchange trading."
By bank type, domestic banks' trading volume was $30.13 billion, down 3% ($940 million) from the previous quarter. Foreign bank branches' trading volume was $37.66 billion, down 1.8% ($680 million) from the previous quarter.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
