Response To The Rmb Exchange Rate Reform To Strengthen The Exchange Rate Risk Management

Since July 21,2005, The People's Bank of China has adjusted the Policies of RMB Exchange Rate. China would adopt a managed float exchange rate mechanism, under which the RMB would no longer be tightly pegged to US dollars. The RMB exchange rate would be determined in reference to a basket of currencies on the basis of market supply and demand. On the date of July 21, 2005, the exchange rate of RMB was set at 8. 11 to the US dollar, on approximately 2 percent appreciation of the RMB.The more fluctuating RMB exchange rate will challenge the risk management of the domestic enterprises and financial institutions which have been used to the environments that the RMB exchange rate was tightly pegged to US dollar. This paper will analyse the situations and challenges which will be faced by the domestic enterprises and financial institutions. Then this paper dissertates the ways to deal with these forex risks.