14 Jun compare the answers in one final answer
Answer 1: The expectations of the Korean firms was to limit their downside in case of strengtheningKorean Won, which is detrimental to their earnings. In addition, Korea would want to take advantage of strengthening US dollar which was beneficial to them. To be safe, Korea opted for Kikos, with the belief that the exchange rate would stay within the stipulated range. The thesis statement to summarize the analysis of the KiKos and the South Korean Won is “Through strategic planning and development of global regulations, the Korean Won can increase in value.” The expectations and fears of South Korea exporting to firms that purchase the KiKos was not researched. Also, it was the responsibility of the bank to explain the complexity of purchasing of products to global firms. Few global firms were familiar with the derivatives product. By banks explaining the downside to the Kikos as well addressing how the exchange rate can move out of range, would help firms understand the products in greater detail. Moreover, the product documents should have been provided in various languages instead of English. Banks should have kept the interests of clients in mind and explained to them the downside related to these products (Eiteman, 2016). Banks were concerned about the selling of products rather than checking the suitability of the clients. Firms suffered because they bought the products without understanding them properly
Answer 2: South Korean exporting firms were not content with South Korean Won ( KRW) appreciating consistently over years against US dollar as a large portion of their costs were brought about in KRW and a large portion of their sales were exports to purchasers who pays in dollar. The desire for Korean firms was to restrict their drawback in the event of appreciating KRW and depreciating US Dollar which is inconvenient to their margins. To oversee currency risks they acquired KiKos advanced by banks .The KiKo contracts gave the exporters the right to sell US dollar at a pre-masterminded strike price so long the conversion scale stays with a characterized range. Anyway if KRW depreciates fundamentally and goes past a set edge the exporters need to pay expansive sum. This proviso was troublesome in light of the fact that this was the specific risk for which the exporters required insurance (Hodrick, 2014).
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