Foreign Exchange Risk Management Under The Perspective Of Profitability

Since 2005, the fluctuation of RMB Exchange Rate the Multinational corporations (MNCs) faced continues to increase after a mix of reforms. In order to manage the foreign exchange exposure, MNCs take many measures. The influence and effectiveness of the measures are the central points of the paper.Based on the financial data from China's listed MNCs between 2011 and 2014, the paper chooses transaction exposure (Exchange Loss), translation exposure(Translation Reserve), profitability (Average Return on Equity) as the explained variables, and operating hedging (NOFAC), financial hedging (FCDs and FDDTL)as explanatory variables. Using panel data model, the paper examines the effectiveness of the measures from the perspective of profitability.The conclusion shows:The operating hedging and the financial hedging are effective to manage the Foreign Exchange Transaction Exposure; the operating hedging is significant to manage the Foreign Translation Exposure; at the same time, the NOFAC and FDDTL could improve the profitability, while the FCDs may decrease the profitability because of its negative effect.Combination of theoretical analysis and empirical research, the paper suggests that MNCs in China should expand its international level reasonably and improve the level of using foreign exchange derivative financial instruments; besides, the companies should focus on the operating hedging and financial hedging for the purpose of a comprehensive foreign exchange risk management.