A Study On The Impact Of Bank’s Foreign Exchange Derivatives To The Foreign Exchange Risk

With the reform of the exchane rate,which declared that China began to implement floating exchange rate system under the management based on a market-based supply and demand with reference to a basket of currencies.This makes RMB exchange rate fluctuations increase.For China’s banks,their foreign exchange positions,international business and their customers make them have to face the exchange rate risk. In this case,with the development of domestic foreign exchange derivatives market,more and more banks use foreign exchange derivatives.It becomes necessary for us to study the impact of bank’s foreign exchange derivatives to the foreign exchange risk.In this paper we choose the relevant data form January 2006 to December 2014 for empirical research.Firstly,we use the capital market approach to measure the foreign exchange exposure of Chinese banks in quantitative way.The foreign exchange exposure can measure the foreign exchange risk in effective way.Secondly,we use Panel Data Modelto study the relation between foreign exchange derivatives hedging ratio and foreign exchange exposure.The result of the empirical research found that foreign exchange derivatives have a negative impact on the foreign exchange risk.According to the national conditions of our country and the experiences of foreign exchange derivatives market,at the end of this paper,specific suggestions were put forward in order to improve the management of exchange rate risk of China’s banks and domestic foreign derivatives market.