Research On Trend Of Exchange Rate And Corporate FX Risk Management

Chinese foreign exchange reserves have been over one trillion USD by the end of 2006, exceeding Japan to become the country with the highest amount of foreign exchange reserves. How to make good use of these reserves has become a major issue for our government to deal with. One the other hand, the appreciation of RMB has been up to 4.7% from Jul. 21, 2005 to Dec. 31, 2006.The fluctuation of foreign exchange rate impacts the enterprises productive activity and financial income and expenses greatly. Therefore, the management and prevention of foreign exchange risks has been of crucial importance for an enterprise to become profitable. However, most enterprises have not realized the increasing importance of foreign exchange risks up to now.The first part of this paper points out that foreign currencies have already become the most popular commodities up to now and introduces the exchange rates characteristics of the USD centered seven main world currencies including the economy situation of every country, their monetary and fiscal policies makers, the main characteristics of the currencies and the most influential economic indicators.The second part elaborates the significance of the exchange rate reform since Jul.21, 2005 in terms of China's international energy strategy. The latter part analyses the potential risks that underlying China's huge amount of foreign exchange reserves, making suggestions on how to make good use of these reserves.The third part elaborates the principle and application of Technical Analysis named Wave and Period Theory, providing a very important tool for foreign exchange rate prediction and risk management.The fourth part includes the fourth chapter and the fifth chapter. The fourth chapter elaborates how to manage and prevent the foreign exchange risks under the anticipation of the depreciation of the USD. The fifth chapter introduces how a insurance company and Jinhai Grain company manage and prevent the foreign exchange risks, hoping other enterprises could take their experiences as references.