Empirical Study On Factors Influencing Exchange Rate Fluctuations

Under the current trend of economic integration and RMB internationalization,exchange rate risk has become an important factor for multinational companies to consider when conducting international trade and cross-border investment.Effectively evading exchange rate risk is of great significance to enhancing corporate value.Looking at the reform of China's exchange rate system,we implemented a single,managed float based on market supply and demand in 1994,and implemented a managed float system that regulates with reference to a basket of currencies based on market supply and demand in 2005.Finally,by 2010,the scope of the RMB exchange rate had been expanded.China has conducted a total of three exchange rate system reforms.There are many factors that affect the exchange rate fluctuations,including policy factors,economic development factors,and asset market supply and demand factors.It is necessary to understand the influence mechanism and the degree of influence of these factors in order to provide reasonable suggestions for the reform of China's exchange rate system.This article starts with the analysis of Portfolio Approach and analyzes the influencing factors of exchange rates from the perspective of asset market supply and demand.We divide our assets into local currency assets and foreign currency assets according to the currency category.We divide deposits,loans,and bonds according to the asset class.When the model is established,the internal structure of China's domestic and foreign currency assets is found in the form of percentage ratios.Empirical analysis shows that the RMB exchange rate is affected by four economic indicators.Through empirical results,we propose specific proposals for the reform of China's exchange rate system.This paper uses VAR model and cointegration test to find that the ratio of foreign exchange deposit balance to RMB deposit balance,the ratio of foreign currency loan balance to RMB loan balance,the ratio of China's national debt stock to bond market bond balance,and current account surplus to GDP ratio is important long-term determinant of the RMB exchange rate.The increase in the proportion of foreign exchange deposits is positively correlated with the exchange rate.The increase in the stock of government bonds is also positively correlated with the RMB exchange rate.In addition,the proportion of foreign currency loan balances and the current account surplus as a percentage of GDP is negatively correlated with the RMB exchange rates.From the VAR model t-test results,variance decomposition test results and regression coefficient test results,in the short term,the proportion of foreign currency loan balances and current account surplus as a proportion of GDP and RMB exchange rate is more significant,foreign currency The proportion of loanbalance is the Granger cause of RMB exchange rate changes.This article compares empirical results with theoretical expectations and concludes that from the perspective of balance of supply and demand in the asset market,China ' s government improved macroeconomic policies,foreign exchange deposit reserve system,and the pricing mechanism of foreign currency loans to promote reasonable changes in the renminbi exchange rate and proposes corresponding countermeasures.