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Bank of Korea calls on shipbuilders to ease currency gains

Bank of Korea calls on shipbuilders to ease currency gains

Seoul: 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, Bloomberg reported. '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 in a statement released yesterday.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 revenue is converted. Hyundai Heavy Industries, the world's No. 3 shipbuilder, said third-quarter profit more than doubled to a record after it raised vessel prices and as China's trade with Europe and the U.S. spurred demand for ships.'The central bank is making a good move for the market,' said Kim Jae-eun, an economist with SK Securities.
'Shipbuilders and other exporters need to find better ways to hedge their foreign-exchange-rate risks.'Regulators last month started a probe into a surge 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 Asia's best performer.'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 statement said.The Korean won rose for a fourth week and traded at 906.8 per dollar on Nov. 9 in Seoul, from 907.1 a week ago.The BOK officials and regulators last month started an investigation into forward currency transactions. The central bank said on Oct. 23 the probe is intended to figure out the cause of imbalances in the forward market and take measures to counter them based on the outcome of the review.'We need to find out the cause of excessive forward sales,' said Park Shin-young, an economist at the BOK's international bureau. Interbank transactions of currency forwards per day jumped to $850 million in the third quarter, up 35 percent from the previous three months, central bank data show. [13/11/07]

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