The Effect Of Exchange Rate Changes On The Performance Of Banks

With the currency crisis, the close ties of economic in the world, the development of world trade and the resulted far-reaching implications for countries, countries, particularly developing countries in the world are paying more and more attention to the risk of currency mismatch. And the researches of the currency mismatch are more and more deeply and extensively. Currency mismatch is actually an exchange rate risk, which is because of the difference of the currency of assets, liabilities, income and expenditure of the subject of the economic. This leads to the net value of assets, liabilities, income and expenditure which are not hedged exposure to exchange rate risk. With China's economic development, promote of the reform and opening up, "export-oriented" economic development strategies and measures of "mandatory exchange settlement and sales ", commercial banks in China have accumulated a serious risk of currency mismatch. As China loosen hold of exchange in enterprises and individuals, the scope of this risk is being extended to businesses and individuals. Currency mismatch risk has given rise to extensively attention of the state, banks, enterprises and even individuals, and scholars are studying more and more of this direction. In view of researches of domestic scholars pay more attention to calculation the value of overall currency mismatch, and pay less attention to study currency mismatch of micro entities, this paper focus on commercial banks which are micro entities to test the impact of the risk of currency mismatch on commercial banks, which is the innovation of this article. The balance sheet effect of Currency mismatch expresses the system how exchange rate changes affect enterprise performance and economy. With the inspiration of research on the balance sheet effect in and abroad and increasing domestic pressure of RMB appreciation, through the relevant data, this paper judges intuitively if there is balance sheet effect in commercial banks, and the trend of this effect. It also tells the effect on relevant project in balance sheets of banks resulted from currency mismatch and the extent of this impact. Drawing on previous theoretical model, based on data through the commercial banks in China, this paper uses dynamic panel GMM estimation to test whether the exchange rate movements have a significant impact on performance of commercial banks. This paper uses several different indicators related to exchange rate as stability test to verify the stability of the exchange rate impact, and this paper gives corresponding policy recommendations.This article is divided into five chapters. The first chapter introduces the background and significance of topics, ideas, content of the paper, innovations and disadvantages. The second chapter tells the definition of currency mismatch and review of the related theories of balance sheet effects. Based on the theoretical study, the third chapter tells the way of effect on performance and output of exchange rate changes through various channels, and discusses how the exchange rate changes affect net assets of banks by a simple theoretical model. It also tells direct and indirect effects of currency mismatch on performance of banks because of exchange rate changes. The fourth chapter analysis the status of currency mismatch and the effect of currency mismatch on banks through data analysis. Then test the existence of this effect by building a model. Chapter Five is the conclusion and recommendations. Based on previous data and empirical validation, we get the relevant factors which affect the performance of banks. It concluded that the existence of the risk of currency mismatch is indeed related to the bank's operating performance and this effect has a lag. Currently, there are more foreign assets than foreign liabilities in China, and the RMB faces appreciation pressure, so the risk of depreciation in foreign currency assets increases. The conclusions of this study will not only help commercial banks to recognize the existence of risk, but also provide a basis and direction for risk prevention. This paper proposes policy recommendations based on the conclusion, particularly the use of derivatives of the micro aspects.