The Research Of Opportunities And Risks From Foreign Exchange Volatility

This thesis introduces the overall profile of global foreign exchangemarket with scale and features. Consider all the efforts made by the Chinesegovernment since the Chinese foreign exchange reform in2005, this thesisalso discusses the formation and development of the Chinese foreignexchange market.To illustrate a risk, people need to understand the root cause of this risk.For global foreign exchange market, the volatility is the root cause of riskthere. Therefore, this thesis introduces the theoretical principles of exchangevolatility. Combining with the internal and external factors of RMBfluctuation, the author introduces the features of RMB volatility. To analyzedifferent types of volatility, this thesis also examines some useful tools.After introducing the volatilities of foreign exchange markets, theauthor introduces the methodologies for measuring the risks of foreignexchange, which is then followed by measurements of the risks of RMBwith real data. By research, the author identifies that there is no model ortool that can accurately forecast the fluctuation of foreign exchange in aquantitative way. Some financial engineers tried to utilize financial tools toquantify the impact of certain factor upon certain currency or quantify theimpact of currency fluctuation to economic factors. However, there are lotsof interactions between economic factors and currency exchange. It wouldbe very difficult to reflect the impact of certain change by the real currencyfluctuation of economic data. At the current stage, the models and tools forforeign exchange are more for academic purpose.Since we cannot quantitatively forecast the fluctuation of foreignexchange, we have to control the potential risk from foreign exchangevolatility. If applicable, we even can utilize foreign exchange volatility tobetter serve our targets. This thesis elaborates the strategies for currencyappreciation, especially RMB appreciation from the perspective of macro-economy, domestic firms and foreign invested enterprises perspective.