The Empirical Study On Exchange Rate Risk Of Chinese Commercial Banks

For a long time, the RMB exchange rate basically fixed, Chinese commercial banks did notattach great importance to the possible changes in the exchange rate risk, the level of exchange raterisk management was backward. On July21,2005, China began to implement a market-based,managed floatable exchange rate regime with reference to a basket of currencies.Since then, theexchange rate of RMB has violated more frequently and consequently than before，the foreignexchange risk of Chinese commercial banks has demonstrated its existence increasingly. At the sametime, Chinese economy has gradually entered into the world economy, and the reform of China’sexchange rate regime and financial system has been on its path. Such an environment implies theforeign-exchange-related transactions will experience a period of explosive growth and commercialbanks encounter with continually growing foreign exchange risk. Therefore, the management offoreign exchange risk will become more and more important for Chinese commercial banks.This paper utilizes combination method of empirical analysis and normative analysis,quantitative analysis and qualitative analysis to analyze exchange rate risk of Chinese commercialbanks based on relevant literature. Firstly, the first three chapters introduce the basic theory ofexchange rate risk and present exchange rate risk measurement situation. Secondly, on the basis oftheoretical analysis, the fourth chapter uses empirical methods to measure exchange rate risk, whichcontain exposure of foreign exchange, GARCH-VaR Model and stress testing method. The resultsshow that choice of model and method is accurate and suitable. So Chinese commercial banks shouldtake GARCH-VaR Model as main method, exposure of foreign exchange and stress testing assupplement, so as tocontrol exchange rate risk effectively. Finally, according to problems in the courseof research and the empirical results, the relevant policy recommendations are provided.