A Study On The Interactive Relationship Between Domestic And Foreign RMB And Domestic Spot Exchange Rate

One of the features of derivatives is price discovery. Many scholars conducted a lot of comparison and analysis around NDF and the domestic forward, found that NDF has more guiding role than the domestic forward on the spot market. CNH trading volume had exceeded NDF even it started only about2years. As the objective environment changes, this paper will check whether the causal relationship and information flow between those markets changed or not.This paper made a VAR model using CNY DF, NDF, CNH-DFand the domestic SPOT between2010/8/23and2012/12/14respectively. by Granger causality test, Cointegration test, impulse response analysis, concluded that:1-year NDF and CNH-DF leading on the spot exchange rate,1-year NDF has responded to disturbance from SPOT. The spot is leading to1year and3months CNY DF. This conclusion is fully revealed that the offshore market in Hong Kong is in a dominant position in the price discovery causal relationship, The NDF market is still the leader of the causal relationship, and the new CNH-DF also has a strong causal relationship within the spot. But DF is still in the state to be guided.Then this paper established a VAR-BEKK-GARCH model using CNY DF, NDF, CNH-DF and the domestic SPOT respectively, and analyzed return spillover as well as volatility spillover. It reaches the final conclusions as follows:NDF and CNH forward have unidirectional spillover to spot on return spillover,1year NDF and1year CNY DF have two-way volatility spillover to SPOT. However, SPOT has unidirectional volatility spillover to1year CNH DF and3months CNY DF. This indicates that spot is the information center on information flows, as other markets accept the impact of spot.Although the status of the domestic spot market is the information center, but the guiding role of the offshore forward market in price discovery is initially apparent. Besides NDF the CNH forward also increased new uncertainty for RMB pricing. Thus, this paper suggested that it is a must to establish onshore NDF and deepen the existing forward market.