The volume of foreign exchange transactions by foreign exchange banks in the first quarter hit an all-time high, according to the Bank of Korea’s announcement on the 25th. The average daily foreign exchange transaction volume recorded $72.76 billion, showing an increase of $5.02 billion from the previous quarter’s $67.73 billion. This sets a new record since the statistics were revised in 2008.
The surge in transactions during the first quarter is attributed to seasonal factors that typically lead to more activity at the start of the year compared to the year-end. Another major contributing factor was the significant increase in foreign investments in domestic securities, particularly bonds. Net inflows of foreign bond funds were $7.1 billion in the first quarter, increasing by $3.51 billion compared to the previous quarter.
The rising demand for hedging against foreign exchange risks due to the increase in exchange rates also impacted the foreign exchange transaction volume. The average won-dollar exchange rate rose from 1,398.7 in the last quarter of the previous year to 1,452.9 in the first quarter, an increase of 54.2 won.
Foreign exchange derivatives, a major component of foreign exchange transactions, amounted to $44.81 billion, an increase of $2.73 billion (+6.5%) from the previous quarter’s $42.09 billion. Spot exchange transactions increased by $2.3 billion (+9.0%) to $27.94 billion from $25.65 billion.
Foreign branches also saw an increase in transaction volume, recording $40.22 billion, up $3.53 billion (+9.6%) from $36.69 billion. Domestic banks’ transaction volume jumped by $1.49 billion (+4.8%) to $32.54 billion from $31.05 billion.
A Bank of Korea official explained, “Foreign exchange transactions increased as bond demand rose, especially for long-term bonds, apart from the coinciding bond maturity at the end of March. While some purchases were made directly in won, many transactions involved buying bonds through futures trading.”