Study Of Foreign Trade Enterprises To Foreign Exchange Risk Management Strategy

Since currency fluctuations have much impact on cash flows, on assets and liabilities, and on the real business of the firm, exchange risk is the effect that unanticipated exchange rate changes have on the value of the firm. Exchange risk is simple in concept: a potential gain or loss that occurs as a result of an exchange rate change.The management of foreign exchange risk is the important component in the management of the foreign trade company. Exchange risk is usually divided into three categories: economic exposure, transaction exposure and translation exposure.Economic exposure is the impact of unexpected exchange rate movements on cash flows within the company. Transaction exposure comprises the identified cash flows in a business that would be affected by future exchange rate movements. Transaction exposure has to do with the assets like accounts receivable or payable. Typical examples of transaction exposures are foreign currency invoices, both inward and outward; contracts won, expected sales and purchases (in some cases) and a proportion of debtors and creditors outstanding. Translation exposure concerns the impact of future exchange rate movements on assets and liabilities denominated in foreign currencies.In the view of foreign trade company, this thesis explicates How to(fridentify and measure foreign exchange exposure in the management of foreign exchange risk. Foreign exchange risk management begins with measuring its exposure, that is, the amount, or value, at risk. Foreign exchange exposure can be measured by different methods, such as Net Present Value Approach, measuring economic exposure; Net Cash Flow Approach, measuring transaction exposure; four methods (current/non-current method, monetary/non-monetary method, temporal method And current rate method), measuring translation exposure.Sometimes, the firm can react to rate changes by (1) raising prices; (2)changing markets for inputs and outputs; and/or (3)adjusting production and sales volumes. All these marketing, production and financial strategy can be used in the management of foreign exchange risk, and especially in the management of economic exposure.Certainly, various tools and techniques of the foreign exchange marketVshould be employed, such as forwards, futures and options, in the exchange risk management, usually in the circumstances that the exposure is certain.Steps and choice of company -foreign-exchange-risk management are also preliminary analyzed in the thesis, which must be taken into account in the operational level of exchange risk management. Generally, four steps should be included in the process of exchange risk management: (1) identify and measure the risk exposure, (2) set objectives, (3)chose the strategy of exchange riskmanagement, (4) implement the management decision.The problems that faced by China foreign trade company after China entered WTO have been listed in this paper. With respect to the present exchange risk management of Xinjiang foreign trade company, not only we make two case study of Tunhe Company and Xinjiang machinery import and export corporation, but also give some strategy suggestions on the exchange risk management to them.