Foreign Volatility Risk Measure And Foreign Exchange Risk Management Of Commercial Bank

On July 21, 2005, People's bank of China announced that China would implement a regulated, managed floating exchange rate system based on market supply and demand and in reference to a package of currencies. With the exchange rate reform development, exchange rate fluctuation becomes very great, the exchange rate of the Renminbi against the U.S. dollar climbed a new high of 7.9732 yuan to one dollar on July 31, 2006. Accordingly, foreign exchange risk management become very significant, in this paper, exchange rate volatility will be measured in a manner of empirical study on HSBC bank.With the opening of economy and finance of our country, domestic commercial banks are facing a more prosperous foreign market and competition becomes more serious, especially the competition from the foreign banks. Foreign business of domestic commercial banks involves transnational settlements and has the feature of valuing in foreign currencies, which make the risks more complex and more concealing. Foreign businesses of our commercial bank increased quickly, but risk management is still at a weak stage. The measure of exchange rate volatility and risk management of foreign businesses has strategic meanings.In chapter one, background and bound of this thesis is presented. In chapter two, it reviews the general theories of the foreign business risk and risk management of commercial bank. Chapter three and four are the keystone. Author applies the ARCH/GARCH model to measure Hongkong dollar exchange rate volatility risk in chapter three. In chapter four, author focuses on foreign exchange risk management and discusses a lot of methods including foreign exchange swap,foreign currency futures, forward foreign exchange contract and foreign exchange option.