Study On Exchange Rate Risk Management Tool In Different Rate Fluctuation Environment

February 18,2017,Markor International Furniture Co.announced that it intended to carry out forward foreign exchange business to avoid exchange rate risk.Markor started forward foreign exchange business in the year 2011.And ended it in 2014 because of the investment losses.Now Markor is restarting forward foreign exchange business,which is closely related to the characteristics of forward foreign exchange business and the change of exchange rate fluctuation environment.It is of great significance to study the application of different foreign exchange derivatives in different rate fluctuation environment.The RMB exchange rate has experienced three different stages since 2005.That is,unilateral RMB appreciation,two-way exchange rate fluctuations and unilateral RMB devaluation.Besides,the floating range of Dollar exchange rate in interbank has changed from 0.3% to 2%.It is very important for foreign enterprises to choose the appropriate exchange rate risk management tools to avoid exchange rate risk.The purpose of this paper is to give suggestions on how to choose the exchange rate risk management scheme under different exchange rate fluctuations.This paper selects Markor as the research subject.The paper sets up a foreign exchange forwards and zero cost option in order to carry simulation analysis of fair value hedging on Markor’s annual average dollar receivables in three different exchange rate fluctuations.By comparing the financial impact and hedging effectiveness of two foreign exchange derivatives,the paper comes to conclusions.Under the unilateral RMB appreciation and the unilateral RMB devaluation,hedging effectiveness of FX forward is higher than that of zero cost option.Under the two-way exchange rate fluctuations,FX forward is inefficient and likely to Increase the financial impact of exchange rate fluctuations.However,by setting the appropriate exercise price range,zero cost option can effectively offset the risk of two-way fluctuations in exchange rates.In addition,This paper also makes a sensitivity analysis of the fair value of the zero cost option.The most influential factor of option portfolio value is spot exchange rate.Then it is risk-free interest rate and red rate.The exchange rate volatility and the residual period are the least.