Gov't to take steps to reduce fallout of currency option derivatives

SEOUL, Sept. 30 (Yonhap) -- The government is planning to announce measures to reduce the fallout of currency option derivatives that are threatening many small- and medium-size enterprises (SMEs), a senior policymaker said Tuesday.

Vice Knowledge Economy Minister Rim Che-min said in a parliament committee
meeting that the government is in the process of finding a solution to
investments made in so-called knock-in, knock-out (KIKO) hedging.
"The aim is to prevent exporters that are otherwise doing well from going
bankrupt due to losses incurred by unexpected turns in the won-dollar exchange
rate," he told lawmakers.
KIKO, introduced late last year, was designed to reduce risks caused by a rise in
the Korean won versus the dollar, but has since become a serious liability to
SMEs that have bought the derivative since the local currency has plummeted in
value against the greenback.
It permits holders to offload the dollar at fixed exchange rates if the won moves
within a certain range preset in the contract.
Without going into detail, Rim said that bailout measures may include extending
SMEs' payment date for outstanding loans and ending the KIKO deal ahead of the
contract to reduce losses.
He added that the government could help with workout programs for the firms that
have been hit the hardest.
Experts say that KIKO has cost companies 1.3 trillion won (US$1.08 billion),
making it imperative for an injection of cash to exporters that are experiencing
a liquidity crunch.
yonngong@yna.co.k