Korea FX Specialist Type II flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Direct quotation

A quotation expressing the price of one unit of foreign currency in domestic currency, e.g., USD/KRW 1,350 meaning 1 USD equals 1,350 KRW; the convention used in the Korean onshore market.

Cross rate

An exchange rate between two currencies derived from their respective rates against a third currency, computed by dividing the KRW rate of the base currency by the KRW rate of the quote currency.

Covered interest parity

The condition in which the forward premium or discount equals the interest rate differential between two currencies, so that hedged borrowing and investing across currencies yields no arbitrage profit.

Real effective exchange rate

A trade-weighted average of a currency's nominal exchange rates adjusted for relative consumer prices; a rising index indicates reduced export price competitiveness.

Bid-ask spread

The difference between the rate at which a dealer buys the base currency (bid) and sells it (ask); it compensates the dealer for risk, liquidity, and transaction costs.

Purchasing power parity

The theory that exchange rates adjust so that identical baskets of goods cost the same across countries; relative PPP predicts the rate change equals the inflation differential.

Foreign Exchange Transactions Act

The Korean statute governing foreign exchange transactions, capital flows, and reporting duties; its Enforcement Decree, MEF Regulations, and BOK Guidelines provide operational detail.

Resident and non-resident

A resident is a person whose principal place of business or residence is in Korea; a non-resident is abroad. FETA obligations attach mainly to residents, while transactions with non-residents are generally freer.

Capital transaction reporting

The requirement to report or obtain approval for capital account transactions such as overseas direct investment, foreign borrowing, and derivatives, classified as prior report, ex-post report, or exemption.

Designated foreign exchange bank

A bank authorized under the FETA to conduct foreign exchange business; its designation defines the scope of permitted business and can be revoked for serious violations.

Emergency exchange measures

Temporary measures the Minister of Economy and Finance may impose when the balance of payments is threatened, such as requiring deposit of FX proceeds or suspending transactions.

FX bank record retention

The obligation of designated FX banks to keep transaction records for the period set by the regulations, typically five years, and to produce them on regulatory request.

Foreign currency deposit

A deposit held with a domestic bank in a convertible foreign currency; it is protected in KRW-equivalent value up to the per-depositor limit under the Depositor Protection Act.

FX reserve requirement

A ratio set by the Bank of Korea on the increase in foreign currency deposits, differentiated by maturity, used to manage FX liquidity in the banking system.

Non-resident won account

A won-denominated account held by a non-resident that can be converted to foreign currency within eligible won funds, subject to reporting to the Bank of Korea.

Telegraphic transfer rate

The exchange rate a bank applies to electronic remittances; it carries a narrower spread than cash rates because there is no physical currency handling cost.

Dormant FX account

A foreign currency account with no customer activity for a defined period; the balance is transferred to a dormant account management process and can be reclaimed with identity verification.

Letter of credit

An irrevocable undertaking by an issuing bank to pay a beneficiary against complying documents; it is independent of the underlying sales contract under UCP 600.

UCP 600 examination period

The five banking days after presentation within which the issuing bank must examine documents; a refusal must state all discrepancies and the disposition of documents.

Documentary collection

A settlement method in which the bank acts as agent: D/P releases documents against payment, D/A releases against acceptance of a time draft, with the exporter bearing buyer credit risk.

Ocean bill of lading

A transport document that is a document of title for ocean shipment; a clean on-board B/L evidences shipment and supports the exporter's claim under a letter of credit.

Export bill negotiation

The purchase of an exporter's draft by a bank, usually with recourse; if the importer defaults, the exporter must repay the negotiated amount plus interest.

Incoterms 2020 FOB

A trade term under which the seller delivers goods on board the vessel at the named port; risk passes to the buyer at that point, and the buyer arranges carriage and insurance.

Spot settlement T+2

The convention that most foreign exchange spot transactions settle two business days after the trade date; USD/CAD is an exception settling T+1.

FX swap

A transaction combining a spot and a forward leg in opposite directions; the swap points equal forward minus spot and reflect the interest rate differential.

Non-deliverable forward

A cash-settled forward contract used for restricted currencies; the settlement amount equals notional times the difference between the fixing and the contract rate, divided by the fixing.

Currency option break-even

For a call, the break-even spot equals the strike plus the premium paid; for a put, it equals the strike minus the premium; at that rate the option holder neither gains nor loses.

Value at risk

An estimate of the maximum loss over a given horizon at a stated confidence level; it assumes stable distributions and understates tail and liquidity risk.

Delta hedging

Offsetting the change in an option's value per unit change in the spot rate by trading the underlying currency, so that the combined position is insensitive to small spot moves.

SWIFT MT103

A customer transfer message used for cross-border remittances; it carries ordering customer, beneficiary, amount, value date, and charge code (OUR, BEN, or SHA).

Annual remittance limit

The USD 50,000 per resident per year allowance for current-transaction remittances abroad, tracked across banks through the foreign exchange information system.

Foreign currency cash declaration

The rule that residents may carry up to USD 10,000 in foreign currency without declaration; amounts above must be declared to customs at the border.

Suspicious transaction report

A report filed by an FX bank with the Korea Financial Intelligence Unit when a transaction appears linked to money laundering or terrorist financing; tipping off the customer is prohibited.