ID :
28211
Mon, 11/03/2008 - 16:46
Auther :
Shortlink :
https://www.oananews.org//node/28211
The shortlink copeid
Exporters sue major banks over currency options
SEOUL, Nov. 3 (Yonhap) -- South Korean exporters filed a class action suit against major lenders on Monday, claiming the currency options they hold are unfair and should be nullified amid huge losses caused by the won's steep decline.
Hundreds of small-scale exporters entered into currency option contracts called
"knock-in knock-out" (KIKO) in recent years to hedge against the falling won.
Under the contracts, firms sell dollars with a fixed exchange rate as long as the
currency moves within a given range. But if the dollar soars beyond the range,
the firms are bound to pay as much as three times the contract amount to the
bank.
The won's steep decline this year -- more than 30 percent against the greenback
so far -- has taken a major toll on such companies. Combined losses reached 1.7
trillion won (US$1.3 billion) as of August, according to the Financial Services
Commission,
Exporters say the banks failed to explain the high risk associated with the
options and ultimately relegated their losses from the won's decline to the
exporters.
Kim Moo-song, a representative for a group of 97 exporters filing the suit, said
that when the dollar soars exorbitantly against the won, the options violate the
principle of good faith.
"The system doesn't function as a hedge," he said.
The suit involves 13 foreign and local lenders, including U.S. Citibank and
British Standard Chartered Bank, as well as South Korea's Shinhan Bank and Korea
Exchange Bank.
According to the financial watchdog's report submitted at the parliamentary audit
session last month, Korea Exchange Bank, Citibank and Shinhan Bank were the major
sellers of currency options, with their customers accounting for 70 percent of
all companies involved in the KIKOs. Korea Exchange Bank traded with 209 firms,
whose combined losses amounted to 322.5 billion won. Citibank sold the options to
134 firms that suffered 408.9 billion won in combined losses, followed by Shinhan
Bank with 117 firms that lost 327.2 billion won.
The options "are unfair and violate the principle of good faith, which makes them
invalid," Kim said.
A group of 100 other smaller exporters plan to file a similar lawsuit next week.
Bracing for the currency fall, the Bank of Korea said it will raise the cap on
its low-rate loans to commercial lenders for the first time in seven years so
they can better help smaller companies weather the dollar shortage.
hkim@yna.co.kr
(END)
Hundreds of small-scale exporters entered into currency option contracts called
"knock-in knock-out" (KIKO) in recent years to hedge against the falling won.
Under the contracts, firms sell dollars with a fixed exchange rate as long as the
currency moves within a given range. But if the dollar soars beyond the range,
the firms are bound to pay as much as three times the contract amount to the
bank.
The won's steep decline this year -- more than 30 percent against the greenback
so far -- has taken a major toll on such companies. Combined losses reached 1.7
trillion won (US$1.3 billion) as of August, according to the Financial Services
Commission,
Exporters say the banks failed to explain the high risk associated with the
options and ultimately relegated their losses from the won's decline to the
exporters.
Kim Moo-song, a representative for a group of 97 exporters filing the suit, said
that when the dollar soars exorbitantly against the won, the options violate the
principle of good faith.
"The system doesn't function as a hedge," he said.
The suit involves 13 foreign and local lenders, including U.S. Citibank and
British Standard Chartered Bank, as well as South Korea's Shinhan Bank and Korea
Exchange Bank.
According to the financial watchdog's report submitted at the parliamentary audit
session last month, Korea Exchange Bank, Citibank and Shinhan Bank were the major
sellers of currency options, with their customers accounting for 70 percent of
all companies involved in the KIKOs. Korea Exchange Bank traded with 209 firms,
whose combined losses amounted to 322.5 billion won. Citibank sold the options to
134 firms that suffered 408.9 billion won in combined losses, followed by Shinhan
Bank with 117 firms that lost 327.2 billion won.
The options "are unfair and violate the principle of good faith, which makes them
invalid," Kim said.
A group of 100 other smaller exporters plan to file a similar lawsuit next week.
Bracing for the currency fall, the Bank of Korea said it will raise the cap on
its low-rate loans to commercial lenders for the first time in seven years so
they can better help smaller companies weather the dollar shortage.
hkim@yna.co.kr
(END)
