Bank of Korea to urge shipyards to use won

The Bank of Korea plans to urge domestic shipbuilders to settle contracts in won and to spread hedging activities over time to curb the currency's gains against the dollar.

"For the currency market's stability, we need to take multilateral efforts such as encouraging shipbuilders to settle deals in won and spread sales of currency forward contracts," the central bank said Sunday.

Korean shipbuilders typically sell dollars and buy won in the forward market to keep a stronger currency from eroding the value of vessels sold abroad when revenues are converted.

Hyundai Heavy Industries, the largest shipbuilder in the world, said third-quarter profit more than doubled to a record after it raised vessel prices and as Chinese trade with Europe and the United States spurred demand for ships.

"The central bank is making a good move for the market," said Kim Jae Eun, an economist with SK Securities in Seoul. "Shipbuilders and other exporters need to find better ways to hedge their foreign-exchange-rate risks."

Regulators last month started an investigation into an increase in sales of forward contracts that caused the won to rise above 900 versus the dollar for the first time in a decade on Oct. 31. The won has risen 32 percent since 2004, making it the best performer in Asia.

"Given that a ship export boom is forecast to last for the time being, the authorities should continue to monitor how forward sales and rising short-term overseas borrowings have affected the currency market," the central bank said.

The Korean won rose for a fourth week and traded at 906.80 per dollar on Friday in Seoul, according to Seoul Money Brokerage Services, from 907.10 a week ago.

Bank of Korea officials and regulators last month started an investigation into forward currency transactions.

The central bank said Oct. 23 that the inquiry is intended to figure out the cause of imbalances in the forward market and to take measures to counter them based on the outcome of the review.

Hyundai Motor's vice chairman, Kim Dong Jin, has called the won's strength the "No. 1 obstacle" for South Korean exporters.


Source:Herald Tribune