Case Study On The Foreign Exchange Risk Management Of The China Southern Airlines

As China increasingly strengthens exchange rate marketization process and successfully promote China's accession to the SDR basket,foreign currency exchange rate changes more frequently.The exchange market environment is changing at the same time.On the international aspect,because Donald Trump with uncertain political attitude to China is in power and he adopts some different policies to Chinese trade and release tax policies,Chinese exchange rate is more difficult to effectively predict.Domestically,On August 11,2015 the central bank to adjust middle price of RMB exchange rate mechanism,cause the RMB against The dollar has fallen dramatically.Now the government insists that improve the level of trade and investment facilitation further,strengthen review and verification of foreign exchange trading,enhance the level of cross-border capital flow regulation.The change of internal and external environment leads airlines formulate higher request on foreign exchange risk management.Under this background,foreign exchange risk management is minded by the airlines with larger foreign exchange losses in our country.As one of the major domestic airline,China Southern Airlines had 5.7 billion exchange losses in 2015.Its foreign exchange risk management problems cause for concern.This paper analyze the southern airlines foreign exchange risk management from the aspects of its foreign exchange risk management process system.In this paper,I analyze foreign exchange loss case of the China southern airlines and combine with the foreign exchange risk management theory analysis,offer advice on building system of foreign exchange risk management for the southern airlines.The study found that China southern foreign exchange risk management mainly has four problems include lack of foreign exchange risk early warning procedures making it can't effectively cope with the change of internal and external environment.China southern airlines have too much foreign exchange risk exposure and the follow-up measures are deficiency and foreign exchange derivatives use can't effectively hedge foreign exchange risk and foreign exchange risk management supervision and evaluation procedures lack of pertinence.For China southern existing problems in the foreign exchange risk management,this paper put forward targeted improvement suggestions.This paper suggest that China southern can establish continuous monitoring by experts of the foreign exchange risk early warning procedures.At the same time,China southern can reduce foreign exchange exposures by cutting foreign currency debt and using diversified ways of aircraft leasing.Foreign institution using differential pricing can also reduce foreign exchange exposures.Secondly,China southern can flexible use of foreign currency derivatives to hedge foreign currency risk.Finally,for improving the pertinence of supervision and evaluation procedures China southern can introduce experts attend audit committee and increase through test way in special circumstances.Through continuous improving foreign exchange risk management for each process,China southern airlines can deal with the current foreign exchange risk more effectively.