Research On Exchange Rate Risk Management Of Commercial Banks In

With the raising of our opening level and the internationalization of RMB, more and more foreign currency exchange business happens between China and other countries. As a result, commercial banks in China have more business which is related to foreign currency.At the same time, China began to start a new exchange rate system since 2010, and the floating exchange rate become more and more unpredictable. This may create exchange rate risk to commercial banks. Qingdao, an important coastal port city in China which is next to Korea and Japan, there are many economic communications between Qingdao and these foreign countries. By that time, the exchange rate risks may be encountered in commercial banks in Qingdao.The core part of exchange rate risk management of commercial banks is the risk measure, in general, the distribution of financial assets has emerged as “high peak and fat tail” characteristics, and the traditional multiVaRiate normal distribution and linear correlation assumptions may make bias. As we know, the copula function does not limit the choice of the distributions. While using copula theory to construct models, the marginal distribution and correlation structures among random VaRiables can be studied separately, in which their correlation structure can be described by a copula function, which not only simplifies the modeling problem, but also make up the lack of the assumptions of traditional multiVaRiate statistical and correlation effectively, and can better measure the portfolio VaR.In this paper, we studied the exchange rate risks theory at first, including the reason and different of exchange rate risks. Then in the fourth part, we find the historical US and Japanese yen exchange rate and use the VaR and copula method to measure the risks of a financial assert. At the end of this paper, we give some recommendations which may help commercial banks to lower the exchange rate risks.