Effect Of Exchange Rate Fluctuations On Our Export Prices

Nowadays, as the increasing development of international economy, the mountof trade among the world is expanding and the economy of all countries are tiedtogether more and more. Exchange rate, which is the most important variable in theopen economy model, is becoming the key research interest of many scholars. Thecollapse of the Bretton Woods System in the seventies of20th century signifies thebeginning of floating exchange rate for international monetary system. The change ofthe rate becomes the normal characteristic of currency market. So research work onexchange rate and analysis of its effect on the price of export commercials playsimportant role in enacting currency policy for the government and avoiding the riskfrom rate change for export companies.In2005, our country had big reform in the exchange rate system and began toexecute manageable floating exchange rate policy based on the supply and demand ofmarket. Since July of2005, the exchange rate from RMB to US Dollars has increasedaround thirty percent. According to the traditional economy theory, the increasingvalue of some currency will inhibit the export of the country. Our country keepshaving trade surplus even though RMB value continuously increases. However, theunbalanced income and expenses for western countries did not improve. So theexchange rate pass-through of our country attracts the focus of domestic scholars. Inthis text, the problem is analyzed from the perspective of the price of exportcommercials. By applying the empirical research method and building the DLMmodel, we try to find the pass-through effect of floating rate on export price ofcommercials from the angle of total export price and detailed ones. It proves thatcurrency rate of RMB cannot pass through completely and it also has significantdelay. The fluctuation of the RMB currency rate has different depth of pass-througheffect on the price of different kinds of export products. The degree of currency ratepass-through for raw product is lower than the manufactured goods. For somecommodity it even did not pass through or has excess pass-through. The lying reasons can be the high dependence of our economy on export, the low competitiveness ofexport product, the poor pricing ability of export enterprise, and the US dollar as themain currency for pricing.This paper is trying to strengthen the ability of export companies avoiding thecrisis from changing currency rate through some reasonable advices as follows. First,we must deepen the reform of RMB currency rate system and create beneficialenvironment for it to promote the harmonious development of economy. Secondly,we should improve the components of export industry and try to be diverse in themarket, especially those we have advantage and competitiveness. To increase our owninnovation, change the structure of the export commodity, and enhance the pricingability can also be good choices to increase the advantage and enlarge the demandfrom the market. Meanwhile, to promote the international settlement using RMB candecrease the effect of currency rate on import and export and the risk for enterprise.To summarize, our government should enact good policy and more importantly, theenterprises should increase the sense of keeping away from crisis and the creativity inscience and technology in order to improve the ability of defending the risk fromexchange rate.