Study On Foreign Exchange Risk Management In Foreign Trade Industry

Since July 21st ,2005, the managed floating exchange rate system whichbased on market supply and demand and with reference to a basket of currencies had come into force. RMB would not peg to US dollars only any more and a more flexible exchange rate system formed. And at the same time, the foreign trade was confronted with higher exchange rate risk.By analyzing of the structure of exchange rate risk faced by international trade enterprises, the objective function model for risk management was constructed. Through exploring how to decrease all the factors that influence the objective, we establish theoretical base and analytic tools. The research is practiceoriented.The thesis constructed the objective function model of foreign exchange risk management. Started with the general concept of risk and integrated with the exchange rate fluctuation character, make a deduction of the analytic expression that the objective function is based on. As to how to measure foreign exchange rate risk, Value at Risk (VaR) method and the Monte Carlo simulation are introduced. Research on foreign exchange rate risk management is the kernel of the thesis. Corresponding ladder of management was put forward based on the analysis of three factors that constituted foreign exchange risk. Forecasting exchange rate by GARCH model and Artificial Neural Network (ANN) model,The results were satisfactory. At the end of the thesis we use a case to show the practice of foreign exchange rate risk management.The conclusion suggests that improving foreign exchange risk management depends on not only the development of theories but also the experiences accumulated in risk management.