The Research On Innovation And Application Of Currency Options In Hedging

On April1st,2011, China officially launched the domestic trading of RMB options against foreign currencies on the interbank market,which marked the birth of the domestic RMB options and enjoyed far-reaching significance for the construction and development of China’s foreign exchange derivatives market.Options are basic financial derivatives as important as forwards, futures and swaps on international financial markets and also the necessary components for the innovation of financial derivatives. Thanks to their unique features,currency options are not only an important part of the foreign exchange market,but also play an incomparable role in the hedge management of foreign currency assets.Along with the continuous development and innovation in the international foreign exchange market,currency options have been widely used in the management of currency risk, but they are still "new things" to our microeconomic entities.However, as with the increasing openness of China’s economy and enhancing flexibility of the RMB exchange rate, managing the currency risk with derivative products have become an intrinsic demand for the domestic enterprises and financial institutions, which,on the other side, raises the requirement for the development of the foreign exchange derivatives market and innovation of the derivative products in China.Under the above background, this dissertation makes a research on the innovative categories of currency options and their application in hedge management as well as current condition and existing problems of currency options in China, aiming to prove the effectiveness of the options in foreign exchange rate risk management and to provide some inspiration and ideas for the development and innovation of yuan options from the perspective of the hedging needs of the microeconomic entities. Firstly,this dissertation introduces the basic hedging functions of currency options and demonstrates their unique features by comparing to other hedging tools like forwards and futures;Secondly, it makes a summary of the popular innovative categories and structures of currency options and analyses the application of the structure forward in hedging by a case study; Thirdly. a research on the current status of RMB options is made and the risk issue of the application is discussed as well; Finally, the conclusion of this paper and relevant advices are presented.