Research On Foreign Exchange Risk Management StrategiesofHome Appliance Industry

As the export industry, home appliance industry often faces many foreign currencies exchange, its main competitive strategy is price competition, so its profit is deeply influenced by the exchange rate fluctuation. Along with the development of China financial system reform and improvement of economic marketization, the exchange rate system becomes more flexible and resilient. The exchange risk that home appliance enterprises encountered is escalating. How to avoid exchange risk becomes an urgent problem to solve. Many economists take research in this subject but most of their works focuses on the rate fluctuation influence on trade. They seldom pay attention to the rate influence on a single industry. This paper takes the representative home appliance company as the study object to find the suitable exchange risk management strategies.Based on reading a lot of literatures and with exiting foreign exchange theories, including Stonehill and Eiteman who classified exchange risk into translation risk, transaction risk and economic risk, Srinivasulu's theory proposed in 1981, the exchange risk management strategy was classified as 2 types:the financial hedging strategy and the operational hedging strategy. This paper uses the two theories as main clue to take research on the home appliance industry foreign exchange risk management, analyzing the current home appliance industry foreign exchange management status, finding out the management problems, including lacking in risk awareness, foreign exchange professionals, management strategy and anti risk capability, then tracing the origins of these problems is the domestic companies are easy to be influenced by exchange risk due to the protection of Chinese government for a long time, also because the Chinese financial market development is just on the initial stage, anti risk measures need to be improved. At last gives the ways to solve these problems, including enhancing the anti risk awareness based on companies themselves, establishing risk control system, training foreign exchange professionals and flexibly using the foreign exchange management strategies.This paper use the case study method, detailed analyzes Hair Group's risk control system and management methods and get inspiration from Hair that a company's foreign exchange risk management is closely related to the whole company's working strategy. Based on this, discusses and concludes the exchange control guidance that applies for the most of household electrical appliance enterprise in operational hedge strategies aspect and financial hedge strategies aspect. Operational hedging strategy includes:choosing the appropriate settlement currency, advance or delay the foreign currency to RMB conversion, sign clause, improve the added value and competition of products, brand strategy, overseas expansion, expand production, establish re-invoicing center, trade finance, etc. Financial hedging strategy includes:forex option, forex swap, forward exchange, etc. Making full use of these methods will keep home appliance enterprises away from the distress of risk in import and export. In addition, because company development depends on the market environment, beside the companies choosing strategies subjectively, they also need the Chinese government's policy support, including equilibrium exchange rate of RMB, cross-border RMB settlement, centralized management of cross-border capital and development of financial derivatives market.The conclusion of this paper is:there are many foreign exchange risk management strategies but not everyone can be used well. The home appliance enterprises need to choose effective anti risk management strategies according to their features, meanwhile, government policy also will play an active role on foreign exchange risk management.