The won-dollar exchange rate falls — does that mean the Korean won is gaining or losing value?  (gettyimagesbank)
The won-dollar exchange rate falls — does that mean the Korean won is gaining or losing value? (gettyimagesbank)

They say what goes up must come down, but it isn’t usually supposed to happen at the same time.

Here’s one thing that can manage it: The Korean won.

The currency is down against the US dollar in April, falling from 1,470 won to as low as 1,418 won. Or should that be rising?

It’s all a lot simpler if you work in euros. When the value of the euro rises, so does the usual currency exchange rate, which measures how many dollars you get for one euro.

But like the Japanese yen and the Chinese yuan, the Korean won is worth substantially less than the dollar, and the yardstick is reversed: The currency is measured against the standard of one US dollar.

That means the exchange rate falls when the value of the won rises.

So when the media reported that the Korean currency had fallen to a more than 15-year low of 1,487.6 won per dollar on April 9, it was talking about a decline from 1315.3 won at the end of September.

This can get really tricky when movements are both up and down. For example, the won started Wednesday at 1,430 won per dollar, then moved to 1,420, before returning to 1,425 by late afternoon.

A display board shows the local currency exchange rate at 1,418 won per dollar on April 17. (Yonhap)
A display board shows the local currency exchange rate at 1,418 won per dollar on April 17. (Yonhap)

At this point, words like up and down are about as useful as a dalgona drumstick.

And take the example of “knock-in, knock-out” currency options, which became a huge issue after the 2008 financial crisis.

Companies that traded internationally used KIKO options to hedge against fluctuations in the exchange rate. As long as the won traded within a certain range, companies could use the options to get a better exchange rate than was available on the market.

So as long as the won stayed, say, under 980 won and above 1,030 won, companies were covered, but if they went beyond those limits, they would be penalized. Problems started when the won fell through the floor — or the ceiling, even.

This stuff is complicated enough without having to worry about which way is up.

There are two ways around the problem, one is to refer to the rate itself.

In the above case, KIKO derivatives holders were fine so long as the exchange rate stayed between 980 and 1,030 won per dollar. But it went a long way outside of that.

Another is simply to use words that don’t suggest an up or down direction, like strengthen, weaken and advance: The Korean currency was trading at 1,257 per dollar at 5 p.m. Friday, gaining 12 won from the previous day.


paulkerry@heraldcorp.com