Future Exchange Rate of South Korean Won

5202 Words21 Pages
| South Korean Won | |

Rochester Institute of Technology Mohamed Waheed-
2/8/2013
|

Table of Contents Overview 2 History of Korean Won 2 Macroeconomic Conditions 3
Gross Domestic Production 3
Major Trading Partners 4 Foreign Exchange Reserve and Current Account Surplus 4
Budget deficit 4
Inflation and Unemployment 5
Interest Rate 5
Type of Currency Regime 5
Current Exchange Rate 6
Purchasing Power Parity and Law of One Price 6
Relative Purchasing Power Parity 7
Interest Rate Parity and Fisher Effects 7
Forward Exchange Rates 7 Balance of Payment Approach 8
Current Account Balance 8
Financial Account 8
Basic Balance 8
Official Reserve Account 8 Assets Approach 9
Real Interest Rate 9
Prospects
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South Korea is one of the strongest economies in the Asia. Economic growth is mainly driven by manufacturing and exports. Exports include automobile, semiconductors, computers, steel and petrochemicals. Imports include heavy machinery, steel and oil. According to Economy Watch, South Korea is the world 's 5th largest importer of oil, with 3 million barrels per day (4).
Major Trading Partners
Korea has very strong trade relations with major world economic powers. David, a contributor to Top Foreign Stocks reported that the biggest trading partners of South Korea are China, followed by the European Union, United States and Japan (3). Major export markets are the European Union, United States, China, and Japan. Foreign Exchange Reserve and Current Account Surplus
Korea is one of the few countries that has been enjoying a balance of payment surplus for a long period. The following graph based on the World Bank data, shows current account surpluses from 2005 to 2012. According to the Bank of Korea, current account surplus for 2013 is estimated to be around $32 billion (5). This would have a strong effect on the Korean Won. Similarly, foreign exchange reserve continued to grow, except for a notable decline in 2008. As reported by Reuters, by the end of 2012, South Korea’s total foreign exchange reserve was more than $326 billion,
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