Why is the won strengthening? Key variables behind exchange-rate changes | Oh Geon-young, Head of Shinhan Premier Pathfinder #2 [Investment Insight]

An independent exercise, not a statement by the video creator or verification of every claim in the video.

Dollar interest of 5% can still produce a negative won return

Assume a 1-year example, not an actual product or FX forecast. Convert KRW 10 million at KRW 1,400 per dollar and assume the dollar asset grows by 5%. Converting back at KRW 1,260 per dollar leaves KRW 10 million×1.05×(1,260÷1,400)=KRW 9.45 million. The won return is -5.5%, different from simply subtracting a 10% FX decline from 5% dollar interest. A won asset growing by 3% would reach KRW 10.3 million, a final difference of KRW 850,000. This assumes cash-like dollar and won assets; price changes in dollar stocks or bonds are separate. For funds held to meet future dollar spending, assess whether the required dollar amount is secured as well as the won-translated return.

Check for yourself

1. Is the return measured in won or dollars?
2. Will the money fund dollar spending at a known date or be converted back to won?
3. Have interest, asset-price changes, FX movements and hedging costs been separated?

Limits of application

The 5% and 3% rates, exchange rates of KRW 1,400 and KRW 1,260 per dollar, and 1-year period are hypothetical. Taxes, conversion spreads, fees, credit risk, early sales and hedges are excluded. This does not recommend a currency or product or establish a real carry-trade result.