On The Price Correlation Between RMB Onshore And Offshore Financial Markets

Since the exchange rate reform in China on July21,2005, to implement a managed floating exchange rate system, the RMB exchange rate volatility significantly enhanced. Up to now, its accumulated appreciation is over30%. On this occasion, the demand that use the RMB derivatives to hedge foreign exchange rate risk is keeping increasing. The RMB NDF market was established in1996. With the development of NDF market, it has become one of the most important pricing markets of offshore exchange rate. At the same time, the offshore market in Hong Kong launched Hong Kong spot rate in June,2011. However, this new market needs a period of time to enhance its pricing ability.There have been so many studies on the onshore spot exchange rate, onshore forward exchange rate and offshore NDF. However, there is on study on these three markets and the two RMB prices. In this paper, we combine theory with empirical research. Based on the interest parity theory, the impossible trinity theory, we have a study on the onshore market exchange rate and offshore market exchange rate with the use of cointegration test, Granger causality test and GARCH model. The research results show that, the Hong Kong spot rate Granger causes the onshore spot exchange rate and offshore NDF. The Hong Kong offshore market on the center of price information. On the other hand, the recent Interest rate has long-run equilibrium relationship with the RMB stoke. At last, we discuss the pricing transfer problem of RMB and give some market development proposals.