Research On Exchange Rate Risk Of China’s Listed Commercial Banks

Since July21st，2005，China has carried out reform of RMB exchange ratesystem，changing from the management’s pegged to dollar into a market-based，withreference to a basket of currencies，managed floating exchange rate system. Thereform makes exchange rate unstable in the Mundell Triangle，and enhance theindependence of monetary policy and free mobility of capital. Long-term pattern ofdouble surplus has been in a RMB appreciation expectation under the floatingexchange rate system，which gives China’s commercial banks a new risk managementchallenges. The2008global financial crisis not only exposed the complexity ofinternational transmission of financial derivatives risk，and showed the commercialbanks participating in international business inevitably suffer from exchange rate risk.In this paper，firstly we qualitatively analyze the exchange rate risk，describingthe implications of exchange rate and exchange rate risk，analyzing the reasons for theformation of exchange rate risk and the impact on commercial banks，and focusing onthree types of exchange rate risk：transaction risk，accounting risk and economic risk.Then according to the financial statements of China’s listed commercial banks，basedon combination of status，we analyze the exchange rate risk exposure and the use ofvalue at risk VaR in commercial banks. In addition to the exchange rate riskmeasurement methods，the paper also focuses on quantitative analysis of the exchangerate risk on the CSI300index of banks，selecting the day-degree data from March1st，2007to March2nd，2009. Empirical results show that：before the financial crisis，the result emphasizes on stock-oriented model，and the rise of stock price attracts hotmoney inflowing，then the strong demand of local currency causes the currencyexchange rate appreciation；in financial crisis，it emphasizes the flow-oriented model,and the currency appreciation results in corporate profits decline，then the enterprisepessimistic earnings expectations，so stock price begins to fall. Finally，we explore thebalance sheet and off-balance sheet strategies of exchange rate risk management，andcombined with the exchange rate risk management status of the listed commercialbanks，we propose a number of recommendations.