A Study Of Simultaneously Managing The Interest Rate And Foreign Exchange Rate Risks Of Commercial Banks Based On The Theory Of Future Hedging

In an open economy,the assert prices are determined by the supply and demand of the market,the assets price fluctuate in a stochastic manner. In this paper we firstly check the current interest rate and foreign exchange rate risks our five major listed commercial banks faced from the prospective of annual report. What we find through this research is that nowadays commercial banks simultaneously exposed to interest rate and foreign exchange rate risks. Obviously it's necessary and urgent to manage these two risks. While the traditional way to manage these two risks using financial futures is to hedging them separately,therefore leading to over-hedging and inefficient,we introduce a strategy which considers the correlations between the asserts of interest rate and foreign exchange rate. This strategy called as simultaneous strategy and can simultaneously hedging these two risks different from the former strategy what we called as separate strategy.In order to compare these two strategies,we construct a profit function based on the practical commercial banks situation as well as making several assumptions. Our empirical study based on the data from American financial markets as in china no financial future markets exist. From the perspectives of mean and variance of the profit function,the mean and variance of dynamic optimal hedging ratio and the general judgement criteria of hedging theory,our research show that the simultaneous strategy is advantage of separate strategy. We suggest modern commercial banks should consider to conduct simultaneous strategy in practical risks management.