Research On Foreign Exchange Portfolio Selection

After the RMB exchange rate system reformation, the market mechanism of our for-eign exchange market has gained continuous development and refinement. Foreign excha-nge investment has become a next important one after the stock investment. Capitals, be-long to different participators in the foreign exchange market, which contains central ban-k, financial institutions like commercial banks, foreign trade enterprises, TNCs, and priva-te investors, increase day by day. Therefore, it has been a wide focus on exchange rate discovery, capital allocation, and risk management, such as how to forecast the trend of foreign exchange rate, and how to distribute funds on foreign currency products to maxi-mize the yield and minimize the unforeseen loss.Having collected 134 weeks data, which contains 7 main foreign money's exchange rate, this paper improves the classic"mean-variance"model, by using the ARMA-ARCH time series models, which is established in the former part of this paper, in order to give the foreign money investors a new and useful solution of how to make a portfolio selection on different foreign moneys. And then, it analyzes the lagging characteristic of these 7 foreign money's exchange rate, which is reflected by the ARMA-ARCH time se-ries models, in order to give the empirical evidence to support the investors and policy makers to forecast the trend of the exchange rate. Besides, since different participators'actions in the foreign exchange market have different motives, like the CB's management of the foreign exchange reserves, the self-investment of the financial institutions like co-mmercial banks, the protection for the assets of the foreign trade enterprises and the TN-Cs against devaluation, the private investment, and so on, this paper also discusses the practical value of the foreign money portfolio selection-making, which can help these pa-rticipators to avoid exchange rate risk and gain exchange investment yield.In addition, this paper not only analyzes the foreign money portfolio selection-makin-g, but also gives proposals on how to improve the portfolio selection-making by introdu-cing the Interest Rate Parity theory, the PPP theory, the BOP theory, and other factors t-hat have affections on selection-making, in order to make a closer contact between the t-heory study and the realities.