Flurry of Activity
As foreign investment in domestic securities saw an increase and the exchange rate between the Korean won and U.S. dollar stabilized, banks experienced a historic surge in their daily average foreign exchange trading volume in the second quarter.
According to the Bank of Korea (BOK) on July 26, the daily average foreign exchange trading volume, comprising spot exchange and foreign exchange derivatives, for foreign exchange banks during the second quarter of this year amounted to US$69.37 billion (88.45 trillion won). This figure represented a considerable upswing of 3.8 percent, equivalent to U$2.53 billion, compared to the preceding quarter. Notably, it is the highest volume recorded in 15 years since statistical data collection began in 2008.
The BOK said, “With an increase in foreign investment in domestic securities and reduced volatility in the exchange rate between the Korean won and the US dollar, the foreign exchange market stabilized compared to last year and it led to a rise in interbank transactions.” Notably, the volatility of the won-dollar exchange rate declined from 0.67 percent in the fourth quarter of the previous year to 0.54 percent in the first quarter of the current year, and further to 0.43 percent in the second quarter. Consequently, as foreigners’ monthly securities transactions grew from US$15 billion in the first quarter to US$18.23 billion in the second quarter, interbank transactions emerged as the primary driver of this growth.
Breaking down the foreign exchange trading by product, the spot exchange trading volume rose by 7.6 percent to U$28.47 billion compared to the previous quarter, while foreign exchange derivative trading volume recorded a 1.3 percent increase, reaching US$40.9 billion.
Significantly, within the spot exchange segment, won-dollar trading totaled U$19.9 billion, experiencing a remarkable 5.3 percent rise within a month. Among foreign exchange banks, interbank transactions accounted for the largest share, totaling US$15.21 billion, with a growth rate of 13.5 percent. Domestic customer transactions with foreign exchange banks amounted to US$7.72 billion, while non-resident transactions stood at US$5.54 billion.
For derivatives, futures exchange trading saw a decline, while foreign exchange swap trading increased. The BOK stated, “Futures exchange trading decreased by 5.7 percent compared to the previous quarter, with non-resident non-deliverable forwards (NDF) trading as the main driver. However, foreign exchange swap trading increased by 5.2 percent compared to the previous quarter, primarily driven by interbank transactions among foreign exchange banks.”
By individual banks, domestic bank trading volume surged by 8.6 percent to U$31.57 billion compared to the previous quarter. Meanwhile, foreign bank branches in Korea recorded U$37.79 billion in trading volume, indicating a slight increase of 0.1 percent compared to the previous quarter.