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국내 선물시장설립의 경제성 분석(Analysis of the economic efficiency of the establishment of Korea’s futures market)

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Title 국내 선물시장설립의 경제성 분석(Analysis of the economic efficiency of the establishment of Korea’s futures market)
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Material Type Reports
Author(Korean)

이선

Publisher

서울:한국개발연구원

Date 1986
Series Title; No 정책연구시리즈 / 86-01
Pages 181
Subject Country South Korea(Asia and Pacific)
Language Korean
File Type Documents
Original Format pdf
Subject Economy < General
Holding KDI; KDI School

Abstract

This study aims to analyze the economic effect of the establishment of Korea’s Futures Market. Use of the futures market can come about in two ways: the utilization of foreign futures markets and the establishment and management of a domestic futures market. The utilization of foreign futures markets can be considered as a way to manage imports of raw materials that Korea is highly dependent on; an appropriate level of hedging can alleviate the risk burden that can come about from price fluctuation. The key here is the capability to execute an “appropriate” level of hedging, which requires extensive relevant experiences and management skills. The establishment of a domestic futures market holds an important economic implication. While the utilization of foreign futures market aims to manage the import process, the establishment of a domestic futures market aims to complement the vulnerability of the domestic market economy and improve its efficiency. The latter’s importance is evident from the fact that Japan and other Western countries’ futures trading history began with the maturation of the market economy.

The futures market has evolved around agricultural goods such as grains, and it has recently expanded to include mining, manufacturing and financial goods. By nature, the agricultural goods market is subject to severe price fluctuation and market uncertainty. This means that all of the market players, including farmers, mid-level merchants and end-users, are exposed to both direct and indirect financial loss resulting from these market uncertainties and are faced with challenges in the decision-making process. This has been raised as an issue in the produce market in Korea and it imposed much difficulty on policy makers for a long time.

The establishment of the futures trading system in the Korean market will bring about numerous economic benefits as an analysis of the materials from the US, UK, and Japan has demonstrated: 1) the futures market allows “hedging” the risks that are inevitable in spot transactions; and 2) thereby stabilizes the price fluctuation in the spot market. A futures transaction is run based on the anticipated price for the time of the actual goods “hand-over” in the future. It guarantees a gain on storage with greater certainty through hedging and it presents the market with an “optimal” price level. And the futures market provides detailed and timely information about the demand and supply of the goods in question to all the parties involved.