How The Overseas Financial Markets Affect The Domestic Financial Markets

Academically, the choice of financial liberalization has garnered a lot of attention from international business researchers for several decades. As the comprehensive national power has been kept growing in the last 30 years, the research and discussion about the internationalization of RMB also increases. And the offshore RMB market has a crucial role in this process. In the past three years, with the support from central government, several offshore RMB centers have been emerged. These markets, especially in Hong Kong, has been experiencing an incredibly development. The change happened both in the criteria of dimension for markets and diversification for investors.This paper hopes to construct a trading strategy with a main motivation that the onshore and offshore market will have certain interaction. Since the offshore market still remain ignored three years ago, most investors are unfamiliar with the market and arbitrage opportunities may exist in such situation. In the first part the paper introduced the development of the offshore RMB market and the financial instruments in it. Then a few commonly traded tools are picked up to do more detailed research. Such as the government bond, financial bond, interest rate swap, foreign exchange spot rate and forwards, etc. After empirical and theoretical study, indicators and targets are chosen to do the back test. Finally the paper determined RMB spot rate as the signals to do the intraday trading on the offshore RMB spot rate. The mechanism to choose the time is based on a bunch of technique indicator. Then the paper analyzed the result of the strategy.The paper can give recommendations to the study of the offshore market. Since few study has been done in this field and most of them didn‘t use quantitative methods, my thesis hope to provide a different way to look into the issue.