Use Of Financial Engineering Tools - Forward And Futures Exchange Rate Risk Study

In a full open macroeconomic environment, the chief intematioal finaneial risk faced by China is exchange rate risk, whose management has become a theoretical area to be probed and a practical problem to be dealt with.The thesis, whose objective is to address the issue of exchange rate risk man-agement with financial engineering instniments ( mainly forwards and futures con-tracts), first systematically introduces the theoretical connotation and conrete fortns of exchange rate risk. Then it sets forth the practical meaning of the research subject, and elaborates the conditions, mechanisms and cost constitution of the 4 basic instru-ments when adopted in exchange rate risk management. Next it enters into the field of exchange rate risk exposure measurement and the hedging strategies, introducing the Adler- ]Z}urnas Approach, extending the Approach to a multicurrency situation. And exampled on a Chinese export company and a Japanese multinational corpora-ticn, the positive analysis proves the applicability of the multicunency extension. Hedging effectiveness guides the hedgers in their choice of hedging instruments. The thesis says that currency forwards and futures contracts are no longer interchangeable due to different hedging effectiveness between them which are brought about by stochastic interest rates. It argues that, under the current domestic condtions, Chi-na' s export firms benefits themselves in cross-currency futures market, because cross-hedging erilarages the opportunity set of hedging strategies. Finally, it points out the future extending directions of the relative research territory.