An Empirical Study Of Foreign Exchange Exposure And Risk Management Effectiveness Of Enterprise In China

With Chinese economic rapidly developped, the RMB exchange rate reform and the international of the RMB steadly progressed, more and more Chinese enterprises go abroad, and the demand for hedging the exchange rate increasing. The Chinese foreign exchange system reform is so fast, especially China had carried out major reforms of the exchange rate regime on July21,2005, the RMB exchange rate is no longer pegged to the U.S. dollar, changed to a floating exchange rate system with reference to a basket of currencies, the fluctuation range of the RMB exchange rate further expanded. The fluctuations of RMB is so sharp that the enterprises foreign exchange exposure further increased, foreign exchange risk is not only through product prices, raw material prices, labor prices and financing costs on corporate profits, but also affect the import and export enterprises’s competitiveness in the international market. Foreign exchange risk is an important aspect of enterprise risk management, playing an increasingly important role in the whole value system of the enterprise.With the continuous development of international trade and the steadly progress of the internationalization of RMB, enterprise held foreign currency assets increased year after year, the foreign exchange exposure is also increasing. At the same time, the enterprise foreign exchange risk management at an early stage and shortage of awareness and emphasis foreign exchange risk, foreign exchange risk will not only affect the enterprise profit structure,but will also have an important impact on enterprise’s value. How to understand the foreign exchange risk? How to avoid foreign exchange risk? Multinational companies how to manage foreign exchange risk? These problem are Chinese enterprises need to face and solve.Because of the poor awareness and ability to manage foreign exchange risk, the article research on the foreign exchange risk, the influencing factors of foreign exchange risk, the relationship between foreign exchange risk and enterprise value, as well as the effect of foreign exchange management, verify the status quo of the foreign exchange risk management and make recommendations.The main innovation of the article is closely connect the Chinese foreign exchange risk management theory with practice, overcoming the difficulties of less empirical analysis of Chinese foreign exchange risk management and the divorce of foreign exchange risk management’s theory and practices after2005, guiding the enterprises to manage foreign exchange risk.The first innovation is based on the Fama-French three-factor model that establish four-factor foreign exchange exposure model, to research the relationship between the enterprise value and the foreign exchange exposure. The second innovation is though analysis of the data of a single transaction, to test of the effect of forward foreign exchange trading and the overall condition of our foreign exchange risk management. The third innovation based on the relevant principles of system theory, strategic management and the framework of enterprise risk management, from a strategic viewpoint to build a foreign exchange risk management system.The paper "An Empirical Study of Foreign Exchange Exposure and Risk Management Effectiveness of Enterprise in China"is divided into three parts, including seven chapter, the specific structural arrangements are as follows:The first part is theoretical studies, including the first chapter of introduction, the second chapter of literature review and the third chapter of the foreign exchange risk management theory, mainly intorduce the theory of the foreign exchange risk management, which is the theoretical basis of this article. The first chapter is the introduction, include writing background, writing ideas, researching, articles structural arrangements, the development of the RMB exchange rate regime and the RMB exchange rate movements and volatility. The second chapter is the literature review section,include foreign exchange risk, foreign exchange risk exposure at home and abroad and the foreign exchange risk management, including outcomes of the scholars of foreign exchange risk management research.The third chapter is part of the foreign exchange risk management theory, include the goals and motives of the foreign exchange risk management, foreign exchange risk management, and the classification management of foreign exchange risk, it is the practices research foundation of foreign exchange risk management.The second part is empirical test section, including the fourth chapter of corporate foreign exchange exposure and empirical research, the fifth chapter of the foreign exchange risk management and empirical research and the sixth chapter of build the foreign exchange risk management system, mainly on Chinese foreign exchange exposure and foreign exchange risk management empirical test, is the core part of the text.The fourth chapter is the empirical research of foreign exchange exposure, the study of the relationship between foreign exchange exposure and the value of enterprise as well as the factors that impact the foreign exchange exposure, the enterprises through manage the effects of foreign exchange exposure, to reduce the foreign exchange exposure and thereby enhance the corporate value.In the study of the relationgship between foreign exchange exposure and enterprise value, use of four-factor foreign exchange exposure model empirical analysis that1087shares of listed companies in China’s A-share market, found that exchange rate of the U.S. dollar greatest impacted of the yield of the shares which listed companies, the impacts of the exchange rate yen and euro fluctuations are relatively small, enterprises in the manufacturing sector are greatest impacted by foreign exchange exposure, foreign exchange exposure affect the enterprise value. Among the factors that influence foreign exchange exposure, through the influence factor foreign exchange exposure model, selecting six internal and external factors which affect the foreign exchange exposure, to inspect the factors whether consistent with the expected direction, we found that overseas sales ratio and quick ratio are positively correlated with foreign exchange exposure, the number of overseas institutions is negative correlation with foreign exchange exposure, the results are expected, the use of financial derivatives, long-term debt ratio and the size of the company are positive to foreign exchange exposure, the results are contrary to expectations.The fifth chapter is part of the foreign exchange risk management and empirical tests, introduce the status quo of Chinese foreign exchange risk management, through inspect and analysis the effect of using forward foreign exchange trading to hedge foreign exchange risk.When to test the effect of Chinese enterprises to hedge exchange rate risk, select all foreign exchange forward of a state-owned bank in Liaoning Province, which exclusion the extension and breach transaction data from July2005to the end of2011, and the data include of forward foreign exchange exports business2635pen and imports business2073pen, and the settlement currency include the U.S. dollar, the Japanese yen and the euro, the results found that import enterprises and export enterprises hedge against inflation effect is inconsistent, the different currency hedge effects are not the same, while the unilateral trend of the currency, the companies have to chose the correct direction to hedge, and the shock currency that both directions played a good role against inflation.The sixth chapter is part of to build a foreign exchange risk management system, from a strategic height that the companies build foreign exchange risk management system to manage foreign exchange risk and take it into strategic management.The third part is the concluding part, including the seventh chapter of the conclusions and recommendations, which is summarized the entire paper and the point of this article, from the former conclusions of view, the enterprises should take care of foreign exchange risk, building foreign exchange risk management systems and to reduce the foreign exchange exposure, while from the micro (enterprise) and macro (government) two levels to make the recommendations that help companies do a good job of foreign exchange risk management and enhance enterprise value.