Our Country Commercial Bank Exchange Rate Risk Management Research

Since July21st.2005China has reformed its R M B exchange rate formation mechanism from a single peg to the U.S. Dollar to being reference to a basket of currencies based on market supply and demand, which is a managed floating exchange rate regime. Since then the new exchange rate environment has put forward a greater challenge and higher requirements on assessment and management of exchange rate risk. Since then seven years have passed, and the exchange rate risk management capabilities of the commercial banks in China have made great progress and development. However the overall level is still not high, especially for the measurement of exchange rate risk is still lagging behind the international advanced level.This paper gives a literature review for domestic and foreign research on exchange rate risk management theories, methods, and relevant empirical research. Then there is a introduction for details of exchange rate risk management practices of China’s commercial banks, including the development process, the status quo of exchange rate risk measurement techniques, finally it concludes some problems in China’s commercial banks exchange rate risk management. For the existing problems in exchange rate risk measurement, this paper selects USD/CNY exchange rate in375trading days (from June21,2010to December31.2012) as a sample and calculates the VaR using GARCH model. Empirical result shows that the GARCH model can make better simulation on the characteristics for volatility of USD/CNY exchange rate, meanwhile the calculated VaR is more conservative than which under historical simulation method used by commercial banks.As last the paper proposes some policy recommendations on improving the exchange rate risk management of China’s commercial banks:to establish all-round, whole-process of exchange rate risk management system, to introduce advanced measurement technology such as VaR, to develop foreign exchange derivatives markets and product innovation and improve the professional quality of risk management.