Post-financial Crisis Era Swap Internal Risk Control

2011 is still the economic recovery year for countries all over the world, but there are also some uncertain factors for the economic growth, and the rate of growth will slow down comparing to 2010. Quantitative easing policies are not out in many developed countries like UK, USA and Japan, especially that of USA has been inducing inflation of emerging markets in the world. Inflation pressure all over the world, which may be the biggest threat for China this year. According to the record from the Reuters, the rate of economic growth of China in the first quarter of 2011 slows down, but inflation rate nearly raise to the highest in three years. On April 15 2011, National Bureau of Statistics published data, which revealed that domestic GDP in the first quarter rose more than 9.7 percent compared to the same period of last year, and less than 9.8 percent in the forth quarter in 2010. CPI in March rose 5.4 percent, which made the highest record in 32 months and revealed inflation pressure. Facing the challenge, China uses a combination of monetary policy by raising interest rate and deposit reserve ratio. This year the People's Bank of China, the central bank, has raised deposit reserve ratio by five times, and deposit lending rate by twice. On Feb.8 2011, central bank of China lifted its base lending and deposit rates, financial institutions raised the one-year deposit and lending rates by 0.25 percentage points respectively and other deposit and lending interest rate adjusted accordingly. On April 6 2011, the central bank raised benchmark deposit and lending interest rate, the one-year borrowing and lending interest rates increased by 0.25 basis points; other deposit and lending interest rate and Personal housing accumulation fund loan interest rates adjusted accordingly. After the increases, the one-year deposit interest rate climbed to 3.25 percent while the one-year loan interest rate reached 6.31 percent. On May 18 2011, the People's Bank of China raised deposit reserve ratio by 0.5 percent, which has been the eleventh time since last year. In 2011, deposit reserve ratio was raised by 0.5 percent once a month. Frequent interest rate rate policy will affect trend of RMB exchange rate; meanwhile the volatility of major international currencies due to economic situation and national policy interventions, may also increase the volatility of RMB exchange rate. Volatility of interest rate and foreign exchange rate forces enterprises to face unstable economic situation during the process of assets appreciation and preservation.In recent years, some development has been made in financial swap market of China, but the supervision and risk control still have weakness, which embodies by the lack of self-contained internal risk control system, powerful external agencies and legal supervision. The first lawsuit caused by currency swap transaction in China, was resolved in March 2011. The company, which hadn't paid its counterparty with foreign currency on time, was identified as break of contract, and paid for default fine and interest. This case shows the law risk of swap transaction, and also the urgency of construction involving internal risk control system. Swap, as the fastest growing and most innovative active OTC derivatives trades, plays an competitive advantage in corporate finance, investment and financial management. If Chinese enterprises could not have swap as powerful financial tools under unstable economic situation, it's not possible to meet various risks such as rate change and exchange volatility. Meantime, China need perfect standards and introduce more kinds to speed up development of swap trade. For Financial Crisis broke out from lagging financial regulation, China should strengthen financial supervision, and enterprises need raise awareness of risk prevention. Enterprises would build up internal risk control system of swap transaction based on reality.Theory study about internal risk control of swap transaction haven't been many in China. This thesis studies about the ways to improve risk control of swap trade based on situation of post financial crisis era. The followings are main contents.The first part describes introduction. The part starts with Post-Crisis Era background, and analyses thesis meaning, literature review, innovation and lack. The second part studies relevant theories. The part discusses theories basis and theoretical tool of internal control, swap transaction, and risk.The third part analyses basic minds. It studies about swap transaction risk factors, risk identification and measurement ways, risk control minds.The forth part describes swap transaction status and risk course. It analyses status and existing problems of swap market and participants, macro cause and micro cause of risk. And the the part studies comprehensive factors about swap transaction internal risk control.The fifth part analyses international experience from developed countries and enlightenment for China. It studies about swap market status, regulatory approach and internal risk control system in USA, UK and China. It also concludes enlightenment for China to perfect regulating and internal risk control.The sixth part studies policy recommendations about swap transaction internal risk control. Based on last chapters, it proposes basic principal, design ideas and recommendation of regulatory approach and internal control system.