An Empirical Study On The Effect Of Two Kinds Of Offshore Forward Rates On The Spot Spot Price In China

Recent years, China’s economic is developing and it’s international status is rising. At the same time, the use of RMB continues to expand. So our country plans to promote the RMB’s internationalization.The process of China’s exchange rate system reform will inevitably cause the RMB exchange rate volatility increases greatly, which makes our domestic or foreign residents and enterprises increasing the exchange rate risk. With RMB is becoming more powerful, the forward rate market growths rapidly, witch provides a good way to avoid risk for the market.At present, investors who trade RMB foreign transactions are mainly concentrated in three markets:offshore RMB non-deliverable forwards (NDF) market, Hong Kong’s RMB offshore deliverable forwards (DF) market and the spot exchange rate on the onshore market.Based on the discussion about the price discovery function and related literature theories, this paper tests the data of the three markets according to the cointegration theory. Then this paper builds VAR and VECM model. At last, on the basis of error correction model, granger causality analysis is made in order to review the mutual influence between markets.In this paper, the main conclusions are:Hong Kong’s offshore deliverable forward market’s price discovery function strengths gradually, and gradually becomes the vane of domestic currency with offshore non deliverable forward market. At the same time, Hong Kong offshore market and spot market price discovery function can meet each other, and the interaction between the two markets is enhanced. The offshore non deliverable forward market has maintained a good price discovery function.Finally, this paper also puts forward some policy Suggestions:strengthen the liquidity of offshore pools, further relax restrictions on domestic currency market, perfect the Hong Kong RMB benchmark interest rate formation mechanism,etc.