Research On Exchange Rate Risk Management Of Foreign Exchange Reserve Assets In China

China’s foreign exchange reserves has been in high since the twenty-firstCentury，And surpassed Japan to become the world’s largest foreign exchangereserves in2006for the first time。Foreign exchange reserves hit record highs whilebenefiting from the management system of foreign exchange that all the foreignexchange must be in the possession of the country; On the other hand, The increasingof foreign exchange is due to double surplus of the current account and the capitaland financial account which are in the balance of international payments for overyears.China has always insist on the fixed peg to the dollar before July in2005，Sowe have not paid enough attention to the impact that the change of RMB exchangerate against the dollar. But soon afterward the reforming of the exchange rate shookthe management system to some extent, the RMB no longer peg to the dollar unitary,but adjust by reference to a basket of currencies, implement a managed and floatedexchange rate system. The volatility of the RMB exchange rate has been increasedsignificantly than in the past. Such changes have brought great impact to theinternational investment institutions and export enterprises of china. People began topay attention to the impact of the operating costs and benefits which was brought bythe change of RMB exchange rate. In the past two years，With the appreciation ofRMB frequency and amplitude increasing，China’s foreign exchange reserve assetsappeared to trend down. So it is necessary to study the impact of our foreignexchange that is brought by the RMB exchange rate. VaR (also known as the value atrisk) theory as an important risk management tool, has always been used by the majorinternational financial institutions in the management of bank capital.This article will study the effect to our foreign exchange reserve which isbrought by the exchange rate, and measure the exchange rate risk of our foreignexchange reserve by the introduction of the VaR (Value at risk) theory. First we willintroduce the basic situation of Chinese exchange reserve; and then analysis theinfluence of Chinese exchange reserve by the exchange rate of RMB. Though the granger causality test, the conclusions we have got is: the changes of RMB/US andRMB/HK exchange rate is the granger reason for Chinese exchange reserve, but thereis a time lag effect. Finally I will establish the GARCH models to fit the volatilitycharacteristics of the two kinds of the exchange rate. Calculate the value at risk of theabove two kinds of exchange rate by analytic method, and verify the coverage ofRMB exchange rate changes.Modeling analysis showed that: corresponding fluctuation of T distributionassumption rate model fitting effect is better in general than the normal distributionassumption; the RMB exchange rate against the dollar in the log return of the Tdistribution based on the GARCH (1,1) model to describe the volatility is better, butalso show that the leverage effect does not exist obviously, the impact of externalinformation on the basically is equal; while the RMB against the Hong Kong dollarexchange rate logarithmic return using T distribution based on the EGARCH (1,1)model to describe the volatility is better, show that the leverage effect exists certain,external shocks will impact on the volatility level. The results of the VaR showed that:the volatility models based on the analysis of the value of risk coverage are better forthe actual loss, which is based on the premise that T distribution assumption inEGARCH (1,1) model based on the calculated risk value is best for the RMBexchange rate against the dollar and the RMB against the Hong Kong dollar exchangerate the actual loss tracking results.