Research Of Exchange Rate Risk Influence Factors And Prevention Mechanism In China’s Commercial Banks

Currency risk becomes an important topic in academic community as China gradually entered into global economy. With the formation of RMB two-way fluctuation and the rapid development of international business in commercial banks, enhancing currency risk management has been crucial for the stability of bank system.This paper applies the knowledge of International Finance and Commercial Bank Management into the analysis of exchange rate risk influence factors in the background of policy, market and supervision. Furthermore, the paper analyses the degree of currency risk exposure and illustrates the risk conduction mechanism combining normative analysis and empirical analysis.Firstly, the article summarizes currency risk influence factors in the bank system. For one thing, two-way fluctuation of the RMB exchange rate expectation increases the difficulty of the RMB exchange rate prediction. For another, Chinese funded commercial banks actively implement internationalization layout of business, so that become more sensitive to exchange rate fluctuations. Following that, the paper investigates the exposure of currency risk in Chinese bank system using the method of Fist Difference GMM. The estimation results reveal that there exists exchange rate risk and the lag effect is significant. To explain the formation of exchange rate risk, the fifth part divides the risk conduction into four paths: international trade, international capital, interest rate and accounting conversion.Based on the above discussion, the last part proposes the ways to improve the currency risk management of China’s commercial banks from the macroscopic and micro perspective respectively. The macro prevention mechanism comprises of macro prudential supervision, financial market constraints and economic policies coordination. The micro prevention mechanism comprises of early warning mechanism, control mechanism and insurance mechanism.