Assignment on South Korean Won

Please chose " South Korea (Korean Won, KRW) as a subject for this assignment 1000-1500words please check the two attach files to follow up the assignment guideline Anything please contact back ASAP!

Running head: SOUTH KOREAN WON
South Korean Won
Name of the Student:
Name of the University:
Author Note:

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Table of Contents
Introduction:...............................................................................................................................2
History of the South Korean Won:.........................................................................................2
Balance of Payments account of the South Korean Economy:..............................................3
Currency Movements:............................................................................................................5
Policy to attract Investment and FDI:....................................................................................6
Impact on Currency:...............................................................................................................7
Risks:......................................................................................................................................9
Recommendation to trading countries:..................................................................................9
Conclusion:..............................................................................................................................10
References:...............................................................................................................................11

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Introduction:
In the following report the currency of South Korea is analysed and the major
determinants which can impact the currency rate are discussed. The history of the currency is
discussed along with the current situation of the balance of payment accounts are analysed
and its impact on the Korean currency.
The internal factors which affect the currency are highlighted and the risk which is
present in the economy is analysed. The favourable factors which is present in the South
Korean Economy is discussed highlighting the points which are favourable for investment in
the country. Also advice is provided to the investors in the economy along with a conclusion
is presented at the end of the report.
History of the South Korean Won:
The Korean Won was the currency of the Korean Regime for thousands of years,
when it changed in the year 1910. The era of colonization by japan which started in 1910 and
continued till 1945. At this point the Korean Won was replaced with Japanese yen when it
was valued at par. Thus this currency was used till the year 1945, when after World War II
Korea was divided into North and South and Won replaced the Yen in both the countries.
The South Korean Won initially had a fixed exchange rate which was 15 won for 1
US dollar which was increased till the year 1951, when 1 USD was equal to 6000 won. The
Korean won was replaced with Hwan in 1953, where 1 Hwan was equal to 100 won. Again
after the Korean War the won was introduced in the country where 1 won was equal to 10
Hwan, and by 1975 all the Hwan circulating were removed from the economy. The won was
pegged with the USD at 125 won was equal to 1 USD which was followed till 1980 and the
peg increasing to 580 won equal to 1 USD. Thus post 1980, the currency was tried for a

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floating peg which was successful in the year 1997 after the Asian crisis, which led to the
devaluation of the currency to almost half.
The Bank of Korea which is the national bank of South Korea issues the Won
currency. In the year 2006, the currency had a lot of counterfeits which led to the issue of
new series with additional security features by the Bank of Korea. Thus currently the
economy has 1000, 5000, 10000 and 50000 Won currency notes in circulation. Also due to
the increase in digital payments the use of coins has been reduced in the economy and in
future the use of coins will be abolished (www1.oanda.com).
Balance of Payments account of the South Korean Economy:
The South Korean economy is one of the top exporters in the world ranking to around
5th in terms of global exports. The country exported around $596 billion and imported around
$471 billion in the year 2017. The major exports which had been conducted has been in
circuits and cars, while it has imported $56 billion worth of crude oil. The major exporting
countries are the United States and China which comprise of almost 60% of the total exports
made by the South Korean economy. The exports of the economy have increased by almost
1.2% at an annual rate over the years (www.fxcm.com).
The South Korean economy has a positive trade balance in its current accounts, which
is due to the export being greater than the import. Thus the Korean Currency had been
depreciating with respect to the US dollar being the positive trade balance being one of the
factors.
Since the exports dominate the Korean economy, the importers in other countries
need to purchase the Won currency to make payments to the exporters. Thus the demand for
the currency increases leading to the increase in the value of the currency in the international
markets.

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However, in the year 2019 the economy had been facing a slow economy due to many
reasons leading to the cutting of interest rate by the bank of Korea. The growth rate of the
economy is reduced from 2.7% to 2.2% due to the rise in the global geo political tension.
Thus a fall in the exports is expected in the year 2019 and depreciation of the Won is
indicating the aspect (currency-history.info).
Figure 1: Current Account
Source: www.ceicdata.com
Figure 2: Financial Account
Source: www.ceicdata.com

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Currency Movements:
The South Korean Won has been quite volatile over the years indicating various peaks
and lows for the currency over the five years. In the year 2016 and 2017 when the global
exports for the economy were at a high led to the depreciating of the currency which was
favourable for the exporters. While in 2018 due to the rise in the tension between United
States and China, it led to fall in the exports which was followed in the year 2019. Thus the
Won currency was at lower levels creating unfavourable factors for exporters. However,
imports were at a suitable rate due to the appreciating currency (thediplomat.com/2019).
As the trade war between United States and China came to a common ground and
both countries determining a suitable solution for the war in the year 2019. The currency has
again depreciated due to improving conditions which are expected to last in the year 2020.
Thus the improving conditions will lead to a rise in the foreign currency reserves which had
fallen in the year 2018 due to rise in the imports (oec.world/en).

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Figure 3: Historical Currency Movement
Source: oec.world/en
Policy to attract Investment and FDI:
The South Korean economy has sound economic policy which ranks 15 in the global
level. The unemployment rates in the country has been low while the level of debt which is
present in the country is also low. The taxes in the economy is very low and the tax rate being
relatively low compared to global economies. Thus the low taxes are attracting investment
from other nations. The financial system which is prevailing in the country is strong since the
amount of non-performing loans is quite low (www.sgi-network.org).
Thus the factors such as low unemployment rate, lower taxes. Boosting economy and
a sound financial system brings confidence to investors to invest in the country.

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Impact on Currency:
The average inflation rate in 2018 was 1.48%, which had increased to the level of
1.78% in the year 2019 and is expected to trend at a level of 2.1% in 2020. Thus since the
rate of inflation has a direct impact on the level of interest rate in an economy and thus which
affects the currency exchange rate. The increase in inflation would lead to a rise in the
interest rate which would lead to attraction of investments from foreign countries. Thus this
would lead to rise in the exchange rate due to the high demand by investors.
However, the GDP growth rate of the economy had been at 2% in the year 2019 but it
was below expectations of 2.2%. Also the reduction of the expected growth rate of the
Korean Economy to 2.2% from 2.7% leads to indicate a slowing of the economy. Thus the
investments in the country are expected to be expatriated by the investors which might lead to
the fall in the price of the currency (tradingeconomics.com).
Thus the effect on the currency due to interest rate, inflation and growth will lead to a
demand and supply for the currency and it is indicated that the Korean Currency will rise in
the year 2020.

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Figure 4: Inflation Rate
Source: www.statista.com
Figure 5: Interest Rate
Source: www.forexblog.org

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Figure 6: GDP Growth Rate
Source: tradingeconomics.com
Risks:
The possible risk by the Korean Economy is due to the rise in the trade war between
china and the United States. This would lead to fall in the exports as Korea is a major
exporter country. Thus also the fear of the war between United States and Iran has led to rise
in the price of crude oil, thus which would also impact many industries in the country
(www.google.com).
Recommendation to trading countries:
The advice to the trading countries is to make minimum investment in the Korean
economy as the geo political tension around the globe lead to a rise in volatility. Thus the rise
in volatility would lead to losses to investors to the tune of billions of dollars. Thus the
investment should be made in the countries which are not being directly affected by the rise
in the global tension (www.google.com).

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Conclusion:
Thus in the above report various factors relating to the Korean Economy are discussed
which have an impact on the exchange rate of the country. The country being a primary
exporter is widely affected by the geo political tension making the currency volatile. The risk
are analysed and a conclusion of making minimal investments in the economy is provided.

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References:
Ferrier, K. (2020) Moon’s New Year’s Resolution for the South Korean
Economy, Thediplomat.com. Available at: https://thediplomat.com/2019/12/moons-new-
years-resolution-for-the-south-korean-economy/ (Accessed: 11 January 2020).
History of Korean currencies | Currency History (2014). Available at: https://currency-
history.info/history-of-korean-currencies/ (Accessed: 11 January 2020).
interest rate in south korea 2019 - Google Search (2020). Available at:
https://www.google.com/search?ei=B8EZXrf2K_6b4-
EPq_qLoAE&q=interest+rate+in+south+korea+2019&oq=interest+rate+in+south+korea+20
19&gs_l=psy-ab.3..33i22i29i30.2779.5057..5343...0.2..0.151.680.0j5......0....1..gws-
wiz.......0i71j0i22i30j0i22i10i30.sNKugAoF4Rs&ved=0ahUKEwj3laDNx_vmAhX-
zTgGHSv9AhQQ4dUDCAs&uact=5 (Accessed: 11 January 2020).
KRW - South Korean Won - FXCM UK (2020). Available at:
https://www.fxcm.com/uk/insights/krw-south-korean-won/ (Accessed: 11 January 2020).
KRW | Korean Won | OANDA (2020). Available at: https://www1.oanda.com/currency/iso-
currency-codes/KRW (Accessed: 11 January 2020).
Media, T. (2020) Inflation South Korea 2019 – CPI inflation South Korea 2019, Inflation.eu.
Available at: https://www.inflation.eu/inflation-rates/south-korea/historic-inflation/cpi-
inflation-south-korea-2019.aspx (Accessed: 11 January 2020).
OEC - South Korea (KOR) Exports, Imports, and Trade Partners (2020). Available at:
https://oec.world/en/profile/country/kor/ (Accessed: 11 January 2020).

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South korean Economy growth rate 2019 - Google Search (2020). Available at:
https://www.google.com/search?ei=NsEZXq7NJr2O4-
EPk4m9oAM&q=South+korean+Economy+growth+rate+2019&oq=South+korean+Econom
y+growth+rate+2019&gs_l=psy-
ab.3..33i22i29i30l2.11119.12873..13287...0.2..0.173.785.0j5......0....1..gws-
wiz.......0i71j0i22i30j0i22i10i30.sJ4KKXhXJE8&ved=0ahUKEwiuwM_jx_vmAhU9xzgGH
ZNEDzQQ4dUDCAs&uact=5 (Accessed: 11 January 2020).
South Korean Won (2020). Available at: https://tradingeconomics.com/south-korea/currency
(Accessed: 11 January 2020).
South Korea Current Account Balance [1980 - 2020] [Data & Charts] (2020). Available at:
https://www.ceicdata.com/en/indicator/korea/current-account-balance (Accessed: 12 January
2020).
South Korea: Inflation rate | Statista (2020). Available at:
https://www.statista.com/statistics/377275/inflation-rate-in-south-korea/ (Accessed: 12
January 2020).
Korean Won Poised for Further Gains | Forex Blog (2011). Available at:
http://www.forexblog.org/2011/05/korean-won-poised-for-further-gains.html (Accessed: 12
January 2020).
South Korea GDP Annual Growth Rate (2020). Available at:
https://tradingeconomics.com/south-korea/gdp-growth-annual (Accessed: 17 January 2020).

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Stiftung, B. (2020) SGI 2017 | South Korea | Economic Policies, Sgi-network.org. Available
at: https://www.sgi-network.org/2017/South_Korea/Economic_Policies (Accessed: 17
January 2020).