Research On Exchange Rate Risks Of China's Enterprises And Operational Hedges

Since July 21, 2005, China began to implement a managed floating exchange rate system based on market supply and demand, with reference to a basket of currencies. RMB exchange rate no longer pegged to the U.S. dollar and formed a more flexible exchange rate formation mechanism. Since the Exchange rate system reformation, the RMB against the U.S. dollar is continually rising and hitting record highs, there is a long-term trend of appreciation. China's enterprises are in the growing exchange rate risk environment and have to face enormous challenges causing tremendous threat to the competitiveness of the enterprises. At present, financial hedges are the main tool used by China's enterprises to avoid exchange rate risk. But in the trend of long-term appreciation of the RMB, only financial hedging can not deal with exchange rate risks, which will be long-standing challenges.In such circumstances, the paper first reviews the theory of exchange rate risk and its management, in particular the development and the status of operational hedging strategies. Then, the paper introduces the cash flow method measuring the enterprise exchange rate risk. In exchange rate risk measurement model, the paper selects 121 listed representative China's enterprises as samples, analyzes the measurement results and compares with the measurements of some other scholars' researches. Based on the measured results that exchange rate risk of China's enterprises is most long-term, it introduces operational hedging strategies for risk management, draws lessons from enterprises of Europe and the United States and Japan applying operational hedging strategies and generally discusses how to use the operational strategies to hedgy exchange rate risk. Finally, in view of the enterprises in different sectors, the paper raised the relevant policy recommendations.