when a trader engages in currency arbitrage they place trades based on differences in the quotes for a specific currency pair offered by different brokers rather than placing trades based on the exchange rate movement of the currency pair if executed perfectly this kind of trade can be risk free since the trader buys and sells two or more currencies simultaneously ensuring there is no open currency exposure 
arbitrage opportunities are often short lived because as soon investors or their trading algorithms identify the pricing mismatch they place enough trades to make the arbitrage opportunity no longer profitable the arbitrage opportunity that can result from the kimchi premium might be exploited by purchasing bitcoins on an exchange outside south korea and then selling the position on a south korean exchange where its price is higher however south korean traders would first have to exchange their local currency korean won for another currency such as u s dollars to purchase bitcoins on an international cryptocurrency exchange from there they could sell their bitcoins on a south korean exchange for a higher price the process for foreign investors is somewhat easier since they can purchase bitcoins abroad and sell their holdings on a south korean exchange capital controls and kimchi premiumthe kimchi premium could be eliminated by south korean investors if they could quickly take advantage of the arbitrage opportunity south korean investors could buy bitcoins outside the country on international exchanges and sell those positions on local exchanges the result would be a lower price for bitcoin in south korea and an increased price on international exchanges this would then eliminate the arbitrage opportunity however capital controls financial regulations and anti money laundering laws in south korea make the process difficult capital controls are measures taken by central banks and regulatory agencies of governments to restrict the flow of capital or money in and out of a country if a significant amount of capital flees a country due to a geopolitical event or economic upheaval a massive selloff in domestic assets can devastate the local economy the south korean government implemented capital controls in 2010 stemming from the global financial crisis and the european debt crisis the measures were designed to reduce the wild fluctuations or volatility in capital flows that may hurt its economy the result is a time delay when sending money internationally due to additional administrative burdens the amount of money that can move out of the country each year is capped and the transfers must be approved by regulators 2even if regulators approve the transfers the process may take so long that the arbitrage opportunity is no longer available capital controls also limit the inflow of cryptocurrencies by foreign investors which has created a scenario in which south koreans can only use digital currencies in their country south koreans and firms are limited in their international bitcoin purchases if a south korean trader decided to exchange their currency for a foreign currency to purchase a bitcoin on a foreign exchange the transaction amount would likely be capped regulators might even block it if there is suspicion of money laundering the impact of south korean regulation on cryptocurrency trading as well as the threats of a cryptocurrency ban in china may have led to the massive sell off of bitcoin in january 2018 in which bitcoin lost nearly 25 of its value in one week bitcoin and other cryptocurrency prices plummeted as south korea s government signaled that it planned to crack down on cryptocurrency trading at that time south korea was the third biggest market in the world for bitcoin trades behind japan and the united states 3although the south korean government has threatened a complete ban they have also considered alternatives to a complete ban such as having investors pay capital gains taxes they may also require investors to register investment accounts in their own names to combat illicit uses 