Exchange Rate Regime During The Transition Period Of China's Commercial Banks, Foreign Exchange Risk Management Study

Effective managements of the foreign exchange risk is very important, for the stability of our bank systems, it can ensure the reform of foreign exchange rate system.The first part gives a description of new opportunities and challenges our commercial banks will encounter if we reform foreign exchange rate system. In this section we retrospect the history and statuesque of foreign exchange rate system's reform, and its effects on commercial banks, then show the readers the contemporary situations and difficulties of the reform. We think strengthening the managements on foreign exchange rate risk is very important.The second part is the theoretical study of the problems, we bring out some theories, such as reform on foreign exchange rate system, foreign exchange rate risk, managements of foreign exchange rate risk. Reform on foreign exchange rate system includes "two extremes"," disappearing of immediate system", "aiming zone", "fixed on a group of monetary", "improve the operation mechanism of central bank", "enlarging the scale of the volatility of foreign exchange rate", The managements of foreign exchange risk mainly include "financial derives", "measurement of foreign exchange risk's exposure ","hedging", "hedging efficiency", "cross hedging problem in foreign currency risk administration". These theories are beneficial for our study.Third, we discuss foreign commercial banks' experience on foreign exchange risk management including the experience of American banks after Britton Woods, of Latin American banks during their financial crisis, and of Japan and Korea banks during Southeast Asia Financial crisis, then we think new ideas and policies are needed on exchange risk managements.At last the article gives some advice on foreign exchange risk managements: External prerequisites such as fitted supervision, laws and regulations for the normal operation of markets, the improvement of Market-making System are needed. We think that commercial banks need new conception on the management, that is, risk management does not mean keeping risk away, but realizing reasonable match between risk and profit under capital constraint. Managing risk should be in consistent with external supervision. Mastering advanced technologies and ideas are indispensable for this. Internal managements including that Board of directors and high level managers should know well the managements, commercial banks should strengthen internal audit on foreign exchange business and foreign exchange risk. Last but not least, Money supply manages, assets and debts making a pair, should be introduced.