The New Rmb Exchange Rate Determination Mechanism Commercial Bank Foreign Exchange Risk Management

In July 21^st, 2005, The People's Bank of China made the announcement on reforming the RMB exchange rate regime. China has moved into a managed float exchange rate regime, with reference to a basket of currencies. RMB will no longer to be pegged to the USD. Domestic commercial banks have been exposed to foreign exchange risks from then on. More over, currency authorities of China have been accelerating the forming of an effective domestic foreign exchange market. Anticipating those courses, commercial banks must enhance their capability on managing foreign exchange risks such as the trade risk, the converting risk and the economy risk in order to maintain their steady and lasting developing.The core of managing foreign exchange risks is measuring risks. Foreign exchange exposure measuring technique is commonly used among domestic commercial banks to evaluate risks. But using shorthand aggregate position (BAP) evaluation ignores the correlation of different currencies so that its accuracy is not satisfying. So with analyzing the correlation of different currencies, weighed aggregate position evaluation is introduced in this article as a new method to measure exposures. And Value at Risk (VaR) is also introduced to manage foreign exchange risk.Commercial banks adapt tools to manage foreign exchange risks. In the market, trading tools includes spot exchanges, forward exchanges, future exchanges, swap, options, etc.