Commercial Banks Exchange Rate Risk Management And Case Study

On July 21^st, 2005, The Cential Bank of China declared that RMB exchange rate rasied 2% against US Dollar, and the exchange regime referred to a basket of currencies. The reform on exchange rate regime makes a more free environment for the domestic financial system to develop. However, it also raises a more strict requirement for those financial system to enhance their defense to risk. The exchange risk management becomes more and more important, especially to those financial institutions, whose foreign assets weight a lot. What China commeicial banks have to do at this moment, is to build up a strict exchange risk management system and improve it, then pay more attention to control risk. Based on the recent exchange rate regime reform and the preliminarily opened China exchange market, this article does research on China commercial bank's exchange risk management. It would give us a new access to recognize China commercial banks, and would have a pratical direction for those banks to further grow in a healthy way.In this paper, exchange rate and exchange rate risks of general principle, the commercial banks of the formation of exchange rate risk, classification, the identification and exchange rate risk on the impact of commercial banks, and then the commercial banks on the exchange rate risk management method has been briefly reviewed and analyzed. As a kind of advanced tool used for quantitative analysis, VaR (Value at Risk) has been approbated by the international financial institutions and applied widely in measuring various financial risk. On the based of our country's current exchange rate system and the current situation of our country's commercial bank's exchange rate risk management, this paper make a deep research on the application of VaR in our country's commercial bank's exchange rate risk management. In this paper, I choose two typical methods of VaR model—Delta-normality and history simulation, using which to measure the exchange rate risk of our country's commercial bank's foreign exchange assets, this kind of research supplies practise proof for the theory model's feasibility, and I believe it is also useful to our country's commercial bank's exchange rate risk management.Finally, empirical research on the basis of the experience of international banking practices, the paper targeted to put forward the following proposals: optimizing the allocation of foreign currency assets and liabilities, vigorously develop the RMB exchange rate derivatives actively engaged in offshore financial business; establish and perfect foreign exchange risk management system.