The Research On Foreign Exchange Exposure Of Listed Companies Based On Real Effective Exchange Rate Of RMB

Along with deepening of monetary system reform in China, especially RMB starting to implement more elastic floating exchange rate system based on market supply and demand, the RMB exchange rate is no longer a fixed exchange rate but referent to a basket of currencies. As RMB exchange rate will gradually move towards the market and realize free exchange between floating exchange rate system and the capital project, the larger scale undulation of RMB exchange rate is inevitable. Those undulations not only provide considerable profits for companies but also form conditions for kinds of risk formation and the conduction, which put these companies into huge challenge of management and the operation of risk, especially the exchange risk. Companies' property and debt as well as income and disbursement are all involved in many kinds of currencies so that exchange rate undulation has great impact on companies' management. Thus, exchange risk management is an extremely important aspect of companies' finance risk management in China. Companies should establish perfect exchange risk management systems and utilize appropriate management strategies to avoid risks. This thesis researches RMB exchange rate which refers to a basket of currencies to explore measurement and management of listed companies' foreign exchange exposure.The thesis selects 10 currencies of different countries and regions as a sample currency in the RMB basket exchange rate reference system according to China's import and export trade volumes with those countries and competition in international trades. It uses ADF and Johansen cointegration theories to evaluate scientificalness of the sample currency in the RMB basket and the validity of the model parameters in different time of periods. Then the thesis takes a moving average to work out weights of all currencies in this basket in order to calculate the real effective exchange rate of RMB. Based on the former result, foreign exchange exposures of listed companies are evaluated by using cash flow approach. The thesis has not only established the linear regression to evaluate influence of current exchange rate mobility on operating income, but also has evaluated the influence of prior exchange rate mobility on operating income by using the PDL model. This thesis also analyzes results according to differentindustries and different period of times.Finally, the result shows that listed companies in China which have foreign exchange exposure constitute a large proportion and concentrate in certain industries, and the foreign exchange exposure mainly distributes in short-term and mid-term stage. According to the results, this thesis draws a conclusion that exchange risk consciousness of China listed companies should be strengthened and the management ability of foreign exchange exposure also urgently needs improving. Based on that, we give out some comments on foreign exchange exposure management for listed companies in China at the end.