A Study On Foreign Exchange Risk Management Of Chinese Commercial Banks

In 1976, a new international monetary system, Jamaica system was built. From then on, the occident countries moved into float exchange rate regime in succession. During the following thirty years, the exchange rate of the foreign exchange market becomes more variable and difficult to predict. In July 2005, The People's Bank of China made the announcement on reforming the RMB exchange rate regime. China has moved into a managed float exchange rate regime, with reference to a basket of currencies. Therefore, domestic commercial banks have been exposed to greater exchange risks. How to manage the exchange risk in the more competitive environment is the main problem that the domestic commercial banks must solve and also the main problem this paper try to study.In this paper, the meaning of exchange risk of commercial banks and the related theory including the purpose, the process, the principle, the stratagem and the supervision of exchange risk management are firstly expatiated. As the risk measuring and decision-making of managing exchange risk is the important process of risk management, the method of value-at-risk is particular discussed in chapter four. In this chapter, my central work is building a model to assess the vulnerability of the commercial banks according to their balance sheet. It is also an kind of attempt on evaluating the ability that the domestic commercial banks cope with exchange rate risk. Chapter five focuses on risk management. We begin with the main financial instruments that traded in foreign exchange market and analysis its application. The hedge method and how to make use of it is briefly discussed too. At the end of this paper, some suggestion aim at the status in quo about the domestic commercial banks is proposed.