After the currency crisis in 1997, Korea liberalised the capital account and introduced a freefloating
exchange rate system. Since then, capital inflows and outflows have expanded,
particularly during 2006 and 2007 when they increased substantially. These trends largely
reflected sharp increases in the export orders of Korean shipbuilding companies and in
residents’ portfolio investment abroad and the resulting greatly increased hedging through
the forward markets. These changes in capital flows have influenced the development of
Korean financial markets and strengthened the linkage between domestic and international
financial markets.