Study Of Commercial Banks To Exchange Rate Risk Management Issues

From 1994, our country has established the exchange rate system, which is managed floating exchange rate system on the basis of market's supply and demand; while it is a fixed rate system pegging to dollar in essence. From July 21, 2005,our country has begun to implement a new exchange rate system, which is managed floating exchange rate system on the basis of market's supply and demand, according to a basket of currencies to adjust. For a long time, China's commercial banks didn't attach importance to the fact that exchange rate fluctuation may bring potential risk, so the level of management was low. Domestic commercial banks who were the most important role would face gigantic risk after the reform of RMB exchange rate formation mechanism. Given this background, the research will play an important role in managing exchange rate risk to China's commercial banks.This paper is divided four parts. It discusses the topic along with the track that is from theory to practice; from analyzing present realities to coming up with problems. It learns from international advanced experience, also sticks to our country's realities. It has both qualitative analysis and quantitative analysis. In the first part, it defines the relative conceptions, then summarizes the theories of three aspects: exchange rate risk recognition, measurement, and managing method. In the second part, it introduces the international tendency and character of exchange rate risk management, and gives us the advanced experience that is worthy of learning. The third part is the most important part. It introduces the conditions how do China's commercial banks manage exchange rate risk, thus comes up with the problems and shortages. It discovers our country's realities accordingly in three aspects: exchange rate risk recognition, measurement, and managing method. In quantitative analysis, it uses the method of J.P.Morgan, and exploits 243 business day's exchange rate of RMB versus EUR in 2006 as samples, then works out FX volatility. At last, with the help of Bank of China's EUR position, it works out the value at risk. thus, it deems that the FX positions of 3 listed commercial banks of quondam state-owned big four are extra big, the exchange risk are big too. This increases the difficulties in exchange risk management of commercial bank. The last part gives solving methods and advices according to the problems in part three, they are optimizing the structure of FX businesses, diversifying the FX capital, improving commercial banks' abilities of exchange risk management and providing a good outer environment for commercial banks' exchange risk management.This paper gives China's commercial banks feasible advices in exchange rate risk management; in quantitative analysis, it also makes detailed steps. I hope it can give some worthy help to China's commercial banks. But sufficient data are not easy to get, some of my thoughts can't be express clearly; at the same time, because of lacking of practice, my recognition about practicing problems may be limited. I will make further efforts to perfect the deficiencies above.