Currency Swap And Its Application In The Foreign Exchange Risk Management

In recent years, foreign exchange risk management has always been an important subject of researchers both at home and abroad. Especially since July 2005, Chinese RMB's exchange rate formation mechanism has been following new arrangements with its range and frequency of fluctuating enlarged, which makes many domestic enterprises face the threat of greater foreign exchange risk. Therefore, they have to grasp the methods and tools of foreign exchange risk management as soon as possible so as to improve their management level of foreign exchange risk. This thesis focuses on currency swaps and its specific application in managing enterprise foreign exchange risk, aimed at providing domestic enterprises with scientific and effective methods and strategies for applying currency swaps to managing foreign exchange risk.After comparison and analysis of domestic enterprises' foreign exchange risk before and after RMB exchange rate system reform and discussing the current situation and problems in their foreign exchange rate risk management, this thesis holds the idea that they urgently need more and advanced techniques and tools to deal with their increasing foreign exchange risk under the present economic and financial environments. It carries out a deep study of the fundamental principle of currency swaps and investigates its valuing and pricing with financial engineering techniques. It discusses applications and limitations of various currency derivatives in managing enterprise's foreign exchange rate risk. Then, it analyzes the characteristics and advantages of currency swaps in managing enterprise's foreign exchange rate risk as well as its concrete procedures, attentions to be paid and external conditions. Finally, it elaborates how currency swaps is applied to managing enterprises' foreign exchange rate risk in a reasonable way with the case of Shenzhen Huawei Technologies Co., Ltd. The research result of this thesis indicates that currency swaps is a powerful tool for enterprises to manage mid- and long-term foreign exchange rate risk.