The Evaluation On Foreign Exchange Risk Of China's Export Trade Company

With development of the global economic integration and multinational enterprises, business financing and investing mode were integrated into international finance further. Capital structure of enterprise became more flexible. Enterprises could finance by means of establishing a financial consortium, securities, joint ventures and credit. Thus this led to frequent business of foreign exchange transactions. The capital of enterprise was became an important component of international financial capital because of the integration of current international financial. In the current foreign exchange market, the member of foreign exchange transactions was comprised with government, export trading companies, investment companies, international financial companies and individuals. Their purposes were different, and this made that the foreign exchange risk was more severe. Chinese export trade enterprise was lack of experience about foreign exchange transactions. In the face of such a complex foreign exchange market, foreign exchange risk of Chinese export trade enterprise was very large. Thus, Chinese enterprise must adopt effective methods to evaluate and manage their foreign exchange risk.In this paper, the current condition of Chinese export trade enterprises was analyzed. The difference of price between current and future was evaluated based on the statistic analyzing historical data of foreign exchange rates and interest rates using the model of Value at Risk (VaR). The value of VaR was obtained. In order to compare of the foreign exchange risk in different enterprises, the 5-level risk method was constructed based on the division between the value of VaR and the registered capital. The foreign exchange risk could be evaluated by the level of enterprise.The method constructed based on the VaR model and the 5-level risk was applied to an export trade enterprise. The future value was calculated with the dollar's foreign exchange quotation and annual interest rate of BC on Dec. 9, 2008 to Dec. 30 2009, a total of 260 work days. The value of asset portfolio on Dec. 30 2009 was calculated too. The value at risk of the enterprise on Dec. 31 2009 was the result of difference price between future and current. The division between the value of VaR and the registered capital was 43%. So, we could conclude that the foreign exchange risk of the enterprise was at middle level. At last, the strategies to manage foreign exchange risk were developed based on the risk level and the current condition of the enterprise.