Research On Foreign Exchange Risk Management Of Enterprise Finance Company In China

In the complex situation of downturning domestic and international economy in recent years, finance companies affiliated to China’s large business groups will face more and more exchange rate risks when they provide foreign-exchange-related services to their customers inside the same group. This paper attempts to analyze the foreign exchange risk management issues of finance companies affiliated to China’s large business groups so as to propose the identification approaches, measurement methodologies and countermeasures for foreign exchange risk suitable for such companies in China based on assessing the status quo of domestic finance companies and assimilating the related experience of their foreign counterparts. As to the measurement methodologies, this paper introduces in detail the principles of Monte Carlo simulation method to measure VaR value and shows the steps to measure foreign exchange market risk with metlab model, so as to guide the finance companies to establish the market risk measurement system. As to countermeasures, the paper conducts case studies on how the finance companies in China effectively control the credit risk, market risk and operation risk of foreign exchange business by establishing institutions, controlling credit line, measuring the risk and monitoring the process. Finally, the paper reaches conclusions based on theoretical and empirical analyses and provides suggestions for foreign exchange risk management to finance companies affiliated to China’s large business groups.