Currency Swaps, And Their Risk Analysis And Management,

Resulting from financial innovation, financial derivates can offset the investment risks from those who dislike risks to those who favor risks and thus improve the utility of each participant. Swaps are popular financial derivates on current financial market. Since the birth of swaps in 1980's, the volume of swap dealing and participants of the international swap market have been increasing. Swap dealing is regarded as one of the necessary tools to finance and manage the risks in the international financial market.Started from the basic principle of the currency swap, the paper studies the pricing and arbitrage of the currency swap, analyses three models of fix-to-fix interest rate currency swap and the market risks under each model. By determining the best one, the article has quantified the credit risks of this related model. Policies to manage each kind of risks have been put forward, too.After China's entry into the WTO, our domestic financial market will be much closer to the international one. The domestic commodity market and financial market are gradually exposed to the outside world. It's necessary for China to develop the financial derivates vigorously, to perform arbitrage and manage the risks. The article analyses the existing financial environment in China and puts forward relative policies on how to carry out swaps in China.