Chinese Enterprises To Foreign Exchange Risk Exposure Before And After The Exchange Rate System Reform And Comparative Study

China has started the reform of exchange rate regime in July 21, 2005. RMB no longer pegs U.S. dollar, instead, it becomes more flexible by linking to a basket of currencies. What are the changes of the foreign exchange risk exposure of Chinese companies caused by the reform? This is an important question. However, only a few scholars have done some research on this topic.Firstly, this paper defines foreign exchange exposure. Secondly, it introduces theorigin of the research of foreign exchange risk exposure, as well as the influences of exchange rate regime to exchange risk exposure. Thirdly, it introduces three methods used by scholars to measure exchange risk exposure: sensitivity method, case flow method, and market value method. Each of the method has its own strength and weakness.By using Williamson's model and Chinese data, this paper has found five major results: 1) companies' exchange risk exposure have increased significantly after the reform, indicating less than enough motivation of hedging activities has been driven by the reform; 2) depreciation have positive influence on companies' market value, while appreciation have the opposite influence; 3) after the reform, there have been three more industries significantly expose to exchange risk: Textile, Agriculture and Commercial trade; 4) the smaller the size of the company, the larger influence of the reform it will have on its exchange risk exposure; 5) among 4 major currencies, Chinese companies display the most significant exposures to Euro.According to the results above, this paper gives some advises on the management of exchange risk exposure and the policy making.