The controversy surrounding Korean companies’ attempts to free themselves through the courts from kiko (knock-in, knock-out) derivatives contracts, after the won’s spectacular fall this year threatened to wipe them out, has offered many market participants the opportunity for routine Korea-bashing.
Such problems are the price that banks must pay for doing business in Korea, the argument runs, and it was ever thus.
Whatever the relative robustness of contract law and its enforcement in Korea might be, however, to make this argument is to ignore the fact that the present mess is at heart a typical derivatives blow-up. Lessons are familiar but they could and should be learnt from.
The contracts in question are currency hedging...
