ASSIGNMENT | MINI-CASE: KiKos and the South Korean Won

SAMPLE SOLUTION

Mini-Case: KiKos and the South Korean Won
Introduction
The changes in currency values of any country against the US dollar speaks volume about the rate of inflation and the expectations of manufacturers. Every country has to ensure that their currency is strengthened and competitive hence help it sustain its economy (Drake & Fabozzi, 2010). In South Korea, the concept of KIKO was a currency option product agreement developed and adopted as a way of helping companies that export to avoid currency risks that could have occurred as a result of in the changes in the rates of currency. The knock-out option was to be executed by a client against a bank while the knock-in was a call option the bank put against its clients (Eiteman, Stonehill & Moffett, 2016). In all these arrangements, it was presumed that companies would gain some foreign exchange profit.
Expectations and Fears
Korean firms anticipated that they would put an end to the hitch in the case of strengthening the Korean Won which had been a disaster to their earnings. Similarly, they also wanted to gain from the strengthening of the US dollar that would at least be…