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South Korea's finance ministry on Sunday announced tightened regulations on foreign exchange transactions to stabilise its volatile finances.

The new measures, which take effect from July, are the latest of Seoul's efforts to regulate foreign capital flows and the fluctuating won.

The ministry said in a statement it would limit South Korean financial institutions' forward currency positions to 50 percent of their equity capital and that of foreign banks operating here to 250 percent.

The won has slumped around 10 percent in the past three months.

Banks in South Korea, Asia's fourth largest economy, can now take almost limitless positions in the forward market if they take offsetting positions in spot, according to the ministry.

Volatile forwards, or contracts where traders can buy or sell currencies at a future date, are often blamed for destabilising the market.

The ministry said forward positions of the foreign banks in South Korea averaged around 300 percent -- higher than the new ceiling -- as of April 30.

Huge positions in the forward market could make the won even more susceptible to big swings as banks or firms adjust their exposure during the periods of volatility.

The won has slumped around 10 percent in the past three months, hitting 1,271.45 per dollar last Thursday, the weakest since May 25, data show.

"The past two financial crises highlighted the need for dealing with volatile capital flows," the ministry said in a joint statement with the central bank and financial watchdogs.

"Such high volatility is due to Korea's heavy dependence on foreign trade and its open and liberalised capital market."

The ministry said it would give a three-month grace period for banks to abide by the new rule, adding that banks would be allowed to carry their current positions exceeding the new ceiling for up to two years.

The new measures included tightening the regulations on the use of bank loans in foreign currency for domestic purposes, the ministry said.

"Building up global financial safety nets will be pursued as the Korea Initiative at the Seoul G20 summit," it said.

South Korea is to host the G20 leaders' summit in November.

Vice Finance Minister Yim Jong-Ryong on Sunday denied that the new regulations were designed to put the market under the government's control.

"They are aimed at enhancing the soundness of the market -- neither to regulate nor control it," Yim told journalists. "We take this action to ease volatility, intending to induce market stability."

He stressed that the measures were purely "precautionary" to brace for future possible volatility in the market.

AFP/fa