Financial Regimes of Korea
What is the situation with the country’s balance of payments (trade and current account balance, capital and financial account balance)? In particular, what is the country’s balance of payments vis-à-vis the U.S.?
What is the country’s exchange rate regime? Is the currency volatile? Do you think the currency might be overvalued or undervalued? Are there any currency controls? Are there forward contracts available so we would be able to hedge our cross-border transactions?
What is the country’s capital regime like vis-à-vis international transactions? Are there any capital controls? Would we be able to make an investment there, and repatriate our profits? Are there any important taxes on cross-border transactions that we need to know about? Does the country have a bilateral investment treaty (BIT) with the US?
Financial Regimes of Korea
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What is the situation with the country's balance of payments (trade and current account balance, capital, and financial account balance)? In particular, what is the country's balance of payments vis-à-vis the U.S.?
Notably, the balance of payment (BOP) is a statement of every transaction made between a nation's entities and the rest of the world within a defined period, especially a year.
The Bank of Korea finalized its yearly revision of the BOP for 2019 to show multiple raw data changes. Besides, the time series of its financial accounts were revised. As of December 2020, the current Korean account had created a surplus of $11.51 billion and $75.28 billion surpluses for the whole of 2020 (Bank of Korea, 2020). The goods account surplus increased to $10.5 billion compared to $5.60 billion recorded in the previous year to break it down. Secondly, the services account deficit reduced to $0.53 billion, from $2.6 billion in the previous year. Such decrease is as a result of improvement in both transport and travel accounts.
There was a significant increase in net assets by $8.5 billion in December for the financial accounts. The whole of 2020 showed a net increase of $77.12 billion. First, $4.97 billion was the increase recorded by direct investment assets, while liabilities shot up by $2.5 billion (Bank of Korea, 2020). Second, the country's portfolio investment increased by $9.6 billion in December, and the liabilities in portfolio investment decreased by $4.7 billion.
In the United States, the trade deficits increased to $68.2 billion in January 2021 from $67 billion in December (Bureau of Economic Analysis, 2020). Exports increased to $191.9 billion as a result of industrial supplies and materials like plastics and other petroleum products. Likewise, capital goods such as civilian aircraft, among other industrial machinery, increased. Meanwhile, imports increased at a faster 1.2 percent to $260.2 billion, the highest figure recorded since August 2019.
What is the country's exchange rate regime? Is the currency volatile? Do you think the currency might be overvalued or undervalued? Are there any currency controls? Are there forward contracts available so we would be able to hedge our cross-border transactions?
South Korea has a free-floating exchange rate determined by the laws of demand and supply. With this kind of fluctuating exchange rate, the country's ministry of finance and economy is limited in regulating the effects of sudden changes in exchange rates (National Encyclopedia). Undoubtedly, South Korea's currency is steeply fluctuating, showing that its economy has been fluctuating to signify its instability and unpredictability. The nation's currency has, over the years, been among the most volatile. However, it has stab...