Research On Risks Of Bank's Foreign Exchange Derivatives

The exchange rate regime reform deepens constantly, which provides foundation for the development of foreign exchange derivatives market. The types of foreign exchange derivatives rises and the size increases, which means opportunities as well as challenges to commercial banks as the main body. On one hand, the value-insured property of foreign exchange derivatives provides tools of lowering and offsetting foreign exchange risks for foreign exchange assets and liabilities held by commercial banks; on the other hand, risks also exist with foreign exchange derivatives themselves, and the wrong judgments on their price change will cause huge loss. How to measure risks of foreign exchange derivatives held by banks, therefore, has become very important subject of commercial banks'foreign exchange risk management.VaR model is of quantitative method measuring market risks advocated in modern financial risk management. The risk measurement based on VaR of foreign exchange derivatives in overseas commercial banks, be it in the field of research or practice, has matured very much. Since China's foreign exchange market, however, has just started its pace of development, and to employ foreign exchange derivatives to manage banks'risks is still in the stage of exploration, lacking in effective quantitative risk-measuring techniques. It's quite necessary, therefore, to study foreign exchange derivatives'risk-measuring techniques based on VaR, expatiate on the implementing process of VaR method of several foreign exchange derivatives (foreign exchange forwards, swaps, options) using cases, and express complicated and abstract mathematical process with relatively simple calculating steps and lively pictures as well as tables, providing reference for ordinary bankers at work on risk management and promoting VaR technique.In addition, risk management based on VaR requires that banks foster more specialized technical talents and establish complete information system, the government strengthens the supervision.