Higher foreign exchange reserves lead to short-term foreign debt inflows.

By bne IntelliNews December 21, 2010
South Korea's higher foreign exchange reserves usually lead to more inflows of short-term overseas debt into the country. As reported by Dow Jones International News, Kim Seung-won, an economist at the Bank of Korea (BOK's) in-house research organization, the Institute for Monetary & Economic Research, stated that with an increase in the reserves, short-term foreign debt versus total overseas liabilities also tend to increase, hurting the country's financial reliability. Investors consider increased foreign exchange reserves as a reduced liquidity risk and thus borrow more short-term foreign funds.

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