ID :
101816
Fri, 01/22/2010 - 17:08
Auther :
Shortlink :
https://www.oananews.org//node/101816
The shortlink copeid
Exporters` risk oversight is to blame for KIKO losses: U.S. professor
SEOUL, Jan. 22 (Yonhap) -- A U.S. management professor defended Friday the sales
of loss-incurring currency option contracts by two local banks, saying their
corporate buyers are to blame for ignoring the possibility of the won's sharp
fall.
"Companies have seen the dollar go up in the past. Why would have they ignored
that (the dollar could rise again)?," Stephen Ross, a business school professor
at Massachusetts Institute of Technology in the U.S. told reporters.
Ross' meeting with reporters followed his appearance as a witness in a Seoul
court on Thursday to help defend the currency derivatives product called
Knock-in, Knock-out (KIKO). The court case involved medium-size cutlery maker
Doruco., along with the Korea Exchange Bank and Woori Bank as defendants.
KIKO was a currency option derivative sold by about 10 banks to a range of small
and medium exporters who used the contract as hedge against volatile currency
swings. KIKO allows contractors to buy or sell the U.S. dollar at a fixed rate as
long as the won-dollar exchange rate remains within a pre-agreed scope. The local
unit's sharp decline below the contracted range in late 2008 to early 2009 left
exporters with huge cash calls and drove several firms to bankruptcy.
The professor said the KIKO products were not intended to result in unreasonable
losses for buyers, as a flurry of firms have argued in court, but the
responsibility for the misfortune rests with those companies that entirely ruled
out the possibility the won's potential plunge could result in heavy liabilities.
"It has nothing to do with complexity of KIKO contract, it just has something to
do with common sense," the professor said, accusing the exporters of failing to
conduct risk assessment.
Ross also underlined the companies themselves should take responsibility for
their misjudgment, noting "we can't have a society in which we protect people
from bad decisions".
Ross' court testimony followed and contradicted that of another U.S. professor
Robert Engle, who testified against banks with KIKO contracts in Nov. 17 in the
same court case.
The Nobel economics laureate said KIKO is unfair and a flawed product in favor of
banks that sold them. He stood in court at the request of local exporters.
pbr@yna.co.kr
(END)
of loss-incurring currency option contracts by two local banks, saying their
corporate buyers are to blame for ignoring the possibility of the won's sharp
fall.
"Companies have seen the dollar go up in the past. Why would have they ignored
that (the dollar could rise again)?," Stephen Ross, a business school professor
at Massachusetts Institute of Technology in the U.S. told reporters.
Ross' meeting with reporters followed his appearance as a witness in a Seoul
court on Thursday to help defend the currency derivatives product called
Knock-in, Knock-out (KIKO). The court case involved medium-size cutlery maker
Doruco., along with the Korea Exchange Bank and Woori Bank as defendants.
KIKO was a currency option derivative sold by about 10 banks to a range of small
and medium exporters who used the contract as hedge against volatile currency
swings. KIKO allows contractors to buy or sell the U.S. dollar at a fixed rate as
long as the won-dollar exchange rate remains within a pre-agreed scope. The local
unit's sharp decline below the contracted range in late 2008 to early 2009 left
exporters with huge cash calls and drove several firms to bankruptcy.
The professor said the KIKO products were not intended to result in unreasonable
losses for buyers, as a flurry of firms have argued in court, but the
responsibility for the misfortune rests with those companies that entirely ruled
out the possibility the won's potential plunge could result in heavy liabilities.
"It has nothing to do with complexity of KIKO contract, it just has something to
do with common sense," the professor said, accusing the exporters of failing to
conduct risk assessment.
Ross also underlined the companies themselves should take responsibility for
their misjudgment, noting "we can't have a society in which we protect people
from bad decisions".
Ross' court testimony followed and contradicted that of another U.S. professor
Robert Engle, who testified against banks with KIKO contracts in Nov. 17 in the
same court case.
The Nobel economics laureate said KIKO is unfair and a flawed product in favor of
banks that sold them. He stood in court at the request of local exporters.
pbr@yna.co.kr
(END)
