The Study Of Exchange Rate Risk Avoidance Of Textile Enterprises

China announced the RMB exchange rate reform on the July 21st, 2005. By September 2007, RMB has appreciated by more then 10% against the US dollar. The RMB appreciation has far-reaching impact on China's textile enterprises, which is a key exporting industry of the nation. The last two years was an import period, and it is necessary to review and evaluate the practice and experience of China's textile enterprises dealing with exchange rate risk. This paper studies how China's textile enterprises avoid foreign exchange risk in the last two years, and provides an entire management system for exchange rate risk in light of the practice of China's textile enterprises.As the development of globalization and China's reform and opening-up policy, China's textile enterprises expand its participation and involvement in international trade. This paper analyzes the influence of exchange rate risk, especially RMB appreciation, on the management of China's textile enterprises, taking into consideration of the characters of China's textile enterprises. This paper believes at present risks arousing from foreign trade pose the largest challenge to textile enterprises. The exchange rate risk can affect the export and reduce the profit of the textile enterprises. More than that, exchange rate risk will increase the production cost, while low cost was a competitive advantage of China's textile enterprises. As a result, the RMB appreciation will bring more competitors for China's textile industry, and the international competition will be fiercer.Most China's textile industry attached great importance on the influence of the RMB appreciation. Some enterprises have adopted measures to avoid exchange rate risk. At present, most China's textile enterprises avoid exchange rate risk by improving their management or adopting proper trade policy. The knowledge and ability of most China's textile enterprises need to be improved. Since the scale of exchange rate derivatives used by China's textile enterprises is too small to cover the trade volume, it can't contribute too much to avoid exchange rate risk.The major inside challenges for China's textile enterprises to avoid exchange rate risk include the limited awareness of management, limited knowledge of derivative products, lacking of financial personnel, poor interior managing system and under-developed domestic banking system.Based on local condition of China's textile enterprises and domestic financial market environment, this paper provides comprehensive solutions to textile enterprises on avoiding exchange rate risk. Textile enterprises shall study the four factors of the Risk Management Circle, optimizing the enterprise structure, and taking comprehensive measures, including adopting derivatives, financial solutions, and trade policies, to avoid exchange rate risk.