키코(KIKO)거래의 법률관계

Because of the situation of Sub-Prime Mortgage in USA, exchange rate changed very extremely. Before 2007 exchange rate almost went down. Since many corporations did not want to sustain a loss because of exchange rate, many of them bought futures, but they had to pay a lot of commission. Therefore they wanted to buy some financial commodity. In 2007, many Korean export companies entered into KIKO trades to protect themselves against the threat of an appreciating Won reducing their profits on their exports. KIKO(Knock In & Knock Out) is a kind of currency option. The structure of this currency option is like that: If exchange rate goes down lower tranche the contract is nullified. On the contrary if exchange rate goes upon upper trance, knock in option takes effect and company has to sell foreign exchange. To reduce the upfront hedging costs, Korean corporations purchased Won call options and sold Won put options, frequently with knock-out features to further reduce hedging costs. But The Korean Won depreciated significantly in 2008 and the companies get big losses. The companies commenced law suits against the banks. The companies sued banks in court to invalidate or terminate their KIKO contracts and sought for damages based on various legal grounds including fraud, mistake, mis-selling and violation of Regulation of Standardized Contract Act. The courts have been made decisions in favor of companies or banks. In this case court made decision in favor of bank. I think KIKO currency option is not suitable to hedge rick of exchange fluctuations. So KIKO currency option is examined in the aspect of financial engineering. And the new system to protect companies in exchange trade is established in the future.