An Empirical Analysis Of Foreign Exchange Risk Factors For Chinese Commercial Banks

With the reform of the RMB exchange rate regime deepening, the degree of market-oriented exchange rate has gradually accelerated. On March 16,2014, the People’s Bank of China expanded the fluctuations of RMB exchange rate for the third time. In the inter-bank spot foreign exchange market, the fluctuation of the RMB exchange rate against dollar expanded from 1% to 2%. Meanwhile, the difference between the mid-point of exchange rate and the bid-ask spread expanded from 2% to 3% in the spot market. We know that the volatility of the RMB exchange rate further increase. In this context, foreign exchange exposure of commercial banks will also undergo some changes. Foreign exchange exposure of commercial banks may be affected by many factors. The study of these factors contributes to the control and management of the foreign exchange exposure.Based on the perspective of the foreign exchange risk exposure, we studied the factors of the foreign exchange risk exposure of commercial banks. While we analyze the factors from banks operating indicators, macroeconomic variables and bank attributes, we focused on the topic that whether the foreign exchange market maker influence the foreign exchange risk of commercial banks, and whether market maker as a variable in conjunction with other variables will affect the foreign exchange risk of commercial banks. This paper selected 16 listed commercial banks of China and studied their annual data from 2007 to 2012. According to the characteristics of the selected sample and variables, we used panel data model to test the presented empirical hypothesis. Preliminary results indicate that the market maker had an impact on the foreign exchange risk exposure of commercial banks. The foreign exchange market maker banks have greater exposure risk than non-market-maker banks. By setting the cross-influencing variable, we found that the market maker banks could appropriately reduce foreign currency exposure risk by managing the size of bank asset. In terms of the sensitivity of changes in exchange rates, there is no significant difference between market maker banks and non-market-makers banks. Meanwhile, preliminary findings indicate that there is a significant positive correlation between the size of the commercial banks, return on assets, the ratio of non-interest income and the foreign exchange exposure risk; and there is a negative correlation between the provision coverage, the ratio of liquidity assets and the foreign exchange exposure risk.