Research Of Foreign Currency Option Manageing Exchange Rate Risk

Along with the progress of managed floating exchange rate regime in our country, the exchange-rate risk in companies with multinational operations has increased due to exchange-rate fluctuations. As banks possesses characteristics of large foreign exchange scale and frequent foreign exchange transaction, successful alarm and control of exchange-rate risk are extremely important to performance of banks. Under this circumstance, various FX Derivatives have played an important role in managing exchange rate risk. However, Chinese listed banks have the problems that they still rely on traditional FX Derivatives and have not brought foreign currency option's superiority into full play. So the ability of product innovation in commercial banks is to be improved.Aiming at above issues, utilizing financial data of listed commercial banks from 2007 to 2014 to establishes a panel data model from a financial perspective, this paper firstly studies the effectiveness of using foreign currency option and other FX Derivatives to manage exchange rate trading risk and accounting risk in listed commercial banks, besides, the superiority between long option an short option. Secondly, according to the real transaction data of option on RMB/USD futures in CME (Chicago mercantile exchange), this paper calculates and counts the earnings of 384 option strategies and the option price tendencies of 308 foreign currency options in order to verify the effectiveness of foreign currency option to cope with exchange rate risk, besides, the advantage and disadvantage between partners in option trading.The main conclusions of this paper are:(1) Foreign currency option is an effective method to cope with exchange rate trading risk and accounting risk. (2) Short option is an advantage in foreign currency option trading. (3) The management effects of traditional FX Derivatives are weakening. At last, this paper suggests that banks should pay more attention to foreign currency option as well as the advantage of short option in exchange rate risk management while optimizing traditional FX Derivatives and innovating financial products. Meanwhile, China should moderately broaden the foreign currency option transaction market and offers more trading opportunities to the participants.