This paper explains the background and recent history of the exchange rate system in Korea and discusses the policy implications for its management of exchange risk.
This paper is organized as follows. Section II examines the characteristics of the exchange rate system, focusing on the international balance of payments and the management of currency. Section III analyzes the exchange rate fluctuations under different systems using statistical analysis, time series analysis and correlation analysis. Section IV estimates how an observational error of the exchange rate fluctuations according to the change of their system has affected corporate decision-making processes. Section V reveals how corporations have taken some measures to avoid exchange rate risk. In addition, it finds some points to be further improved for the Korean government's exchange rate system and suggests institutional devices for the management of exchange risk. Summary and policy implications are provided in Section VI.