A Research On The Theory And Model Of Multinational Corporation Exchange Risk Management

On July 21, 2005 China's central bank (PBOC) made an announcement on reforming the RMB exchange rate regime, indicating that China would move toward a managed floating exchange rate regime with more flexibility and transparency. Chinese enterprises have long been used to a fixed rate with which they are less exposed to the foreign exchange risk and therefore ignored it to some extent. With further reforms on this regime, the foreign exchange risk will become a daily risk to be cautious of by those multinational corporations which maintain large foreign trade volumes and trade by various kinds of foreign currencies. A better planned system of foreign exchange rate becomes essential and pressing for such big companies.The writer here in this article covers relative theories of the risk and briefly describes its characters, new circumstances of those Chinese participators also considered. All those leads to a conclusion that the problem lies in the absence of a guarding system specifically designed for the entity. Foreign researchers have been working on the subject since the 1970's and formed some branches. This article will be explaining some main models involved with the prevention system against foreign exchange risk, analyzing their advantages and disadvantages and concluded with some useful advice.Based on foreign researches, along with the International Accounting Standards and the basic requirements and principles of Capital Management, the author works out a CMPZ (Centralized Multiple Periods and Zero Net Exposure) model which distinguishes itself from the old ones in that it has input the formula of Risk and Net-position when designed. Simultaneously a full set of management system has been established to meet the CMPZ model.