The Empirical Analysis About The Influence Of Exchange Rate Risk On The Risk And Return For The Bank Of China

On July21,2005, the central bank announced that the yuan has appreciated2%against the dollar, since then, The yuan’s exchange rate formation mechanism has been changed to "based on market supply and demand, refer to a basket of currencies, and be the managed floating exchange rate system". Then successively introduced a series of supporting measures such as expanding the scope of the subject of spot foreign exchange market transactions, the introduction of inquiry way to trade and market maker system, expanding the scope of the forward to written, allowing swaps."To enhance the RMB exchange rate flexibility to further promote the reform of RMB exchange rate formation mechanism", the central bank announced to restart the RMB exchange rate mechanism reform on June19,2010. On April16,2012, the yuan against the dollar rate is relaxed to1%. The series of measures above means China’s currency fluctuations will be more flexible, amplitude and frequency of fluctuations will increase further. On one hand it brings opportunities to commercial Banks, on the other hand it takes greater risk to commercial Banks and brings in greater challenge for their risk management. It put forward higher requestor on the risk prevention ability for financial institutions. the exchange rate risk management is more urgent for foreign currency assets weight increasing financial system. Establishing and perfecting the strict foreign exchange risk management system, will be more and more attention on the risk control, and it becomes one of the most important topics for our country commercial bank in the future. In this context, it discusses the issue of exchange rate risk management for Chinese commercial Banks, launched a new cognition for Chinese commercial Banks from the perspective of risk management, and have a certain guiding significance to the reality for the further healthy development of Chinese commercial Banks.This paper is mainly divided into five parts,empirically analyze the influence of the risk and earnings on the bank of China caused by exchange rate risk: The first part is about the research background and research significance, and the definition of exchange rate risk of commercial bank as well as the carding and reviews about the exchange rate risk management. The second part is about analysis of exchange rate for the bank of China with the method of exposure analysis. The third part used the VaR (value at risk) method to measure the exchange rate risk of the bank of China.The fourth part mainly measure the impact of risk and return caused by exchange rate changes on the bank of China from three angle such as assets and liabilities, and capital adequacy ratio and earnings per share.The fifth part summarizes the measurement and analysis of the three parts of conclusions for the bank of China and gives some proposals on foreign currency asset allocation.The empirical results show that the bank of China’s exchange rate risk is relatively large, and its exposure to risk is in expanding trend in recent years.So for the bank of China, to control the risk of their business and increase its profitability, it is necessary to continue to enhance the ability of exchange rate risk management and optimize the distribution of each foreign currency.