An article in the Wall Street Journal notes that movements in the “South Korean won . . . [are] closely correlated with the [Chinese] yuan. . . . China accounts for about a fifth of Korea’s exports and a third of its imports.”

a. Why might the Korean central bank want to avoid large changes in the exchange rate between the won and the yuan? Which groups in Korea would be hurt by a significant increase in the value of the won relative to the yuan? 

b. If the won were increasing in value relative to the yuan, would the Korean central bank intervene in exchange markets to buy won in exchange for yuan or to sell won in exchange for yuan? Briefly explain.