Research On RX Corporation's Exchange Rate Risk Management Strategy

With the advancement of RMB "exchange reform," RMB has been in a state of appreciation.Exchange rate risks become increasingly obvious in trades of companies which have forward settlement and sale of foreign exchange and overseas business,especially in those which own a high proportion of overseas operating income and profits,thus should pay special attention to the management of exchange rate risks.China's enterprises have insufficient awareness of exchange rate risk,and their management of exchange rate risk is at the initial stage,lagging foreign multinational companies.Plus,they have few advanced management theories and methods.The problem of lacking management system for exchange rate risk facing Chinese enterprises needs to be solved urgently.The research object of this article is exchange rate risk aversion of RX China Daily Care Products Co.,Ltd.(abbreviated as “RX Company”).The import and export business occupies a large proportion of RX's operating revenue.Forward settlement and sale of foreign exchange is the most commonly used method of settlement.The company also has many risky assets.With the appreciation of RMB,the profits of this part of the business face severe pressure.In this paper,literature research methods,case analysis methods,field interview methods and other methods are used to study the literature related to exchange rate risk,and learn the theory of exchange rate risk and the corresponding avoidance methods for different classifications.Through the analysis and discussion over the losses caused by the impact of exchange rate risk on the actual transactions in the past few years,corresponding methods of avoidance will be explored.And,through the analysis of company-related systems and financial data,the paper will develop a strategy for currency risk aversion that suits the company's specific circumstances and business.RX's overseas business consists of two main components.The first is the import and export transactions of Hong Kong,Macao and Taiwan branch companies with related parties,and the second is the import and export transactions in overseas markets.According to its business characteristics,with regard to exchange rate risks faced by related party transactions,we should consider how to maximally reduce the financial risk of the entire group from the perspective of the group's financial affairs.For transactions in overseas markets,we should pay more attention to it,employ professional teams,and listen to expert opinions,to keep the risks within the acceptable range of corporate finances.Exchange rate risk is divided into three categories,namely transaction risk,accounting risk and economic risk.Through the study of relevant theories,the development of domestic and foreign economic markets,as well as the company's organizational framework,financial status,exchange rate risk management status and other specific conditions,the RX company's exchange rate risk management recommendations are as follow: 1.set exchange rate risk management goals;2.improve the organizational structure of exchange rate risk management and strengthen risk management awareness among managers;3.develop scientific exchange rate letter management procedures and methods.Meanwhile,this article will put forward specific risk avoidance methods for three types of risks.For transaction risk,leads and lags can be decided when signing contract if it is related party transaction.When it comes to overseas transactions,the exchange rate clause can be added to the contract.During transaction,if a company has a stronger position,it will have the right to choose a favorable pricing currency.For accounting risks,methods like balance sheet method and the long-term contract hedging method can be used.As for economic risks,because they are the largest in scope,the longest in the period,and the most difficult to predict,companies should adjust their business strategies,marketing strategies,production strategies,and financing strategies properly to avoid them.It is hoped that proposal in this paper can serve as reference for RX company and companies with similar businesses to formulate corresponding hedge strategies when meeting the impact of exchange rate risks.