The Feasibility And Scale Of Hedging Loans

Since the reform and the opening-up, China has established a policy of economic reform for the development of establishing a socialist market economy, it is also the dominant ideology. With the establishment of market economy system and the deepening understanding of the market economy system in China, the composition of China’s planned economy continues to decline and the carrying out of the market economy system gradual deepens. Market participants are more active than ever and the continuous development of the national economic aggregate. As of2010, the total GDP of China has surpassed Japan to become the world’s second largest economy. An important feature of the market economy is the supply and demand determine the prices and the productions, sales, and various services are completely guided by the free-price mechanism. People use market-"the invisible hand" to allocate resources to maximize its efficacy, which greatly helps with the efficient allocation of resources. However, in market economy, this visible hand which controls the prices gradually weakened. The production is completely determined by the market price and the farmers are subjected to the constraints of price risk. In reality, the market does not meet the market economic theory in the market as it does not satisfy "free information, flexible structure, unlimited resources" assumption. The friction in the market will eventually results in the "inefficiency" of the market, making the price fluctuate and also could lead to more serious economic crisis of "overproduction" and result in the closure of enterprises, jobless of workers.From the traditional bank credit business, deposits and loans, domestic commercial banks continue to occupy more than80%of the source of profit through the high saving rate and low deposit rate. Most of the reproduction funds still come from indirect bank finance for the majority of domestic enterprises to expand. Market price fluctuations trap enterprises in difficulties an will also have a major impact on banks’business. How to control the price risk faced by the enterprise to control the corporate credit risk faced by banks and how to control the country’s economic development due to the production of excess stability is essential. By rational use of forwards, futures, options and other derivative products for hedging business will effectively avoid the uncertainty of this matter concerning the ups and downs of the price. The use of hedging operations can also be effective for enterprises to reduce or even eliminate the risks of price changes, although it also allows companies to give up potential gains.In view of the hedging operations to protect the normal operation of enterprises, to protect banks from credit risk, to safeguard the country’s economic stability and on the basis of the development of specific factors in the analysis of China’s market, this article explores the hedging business and discuss the possibility of its supporting to the traditional credit business. We also measure its market scales and make policy recommendations in order that China could develop hedging operations, maintain the operation of enterprises and protect banks from bankrupts. We want to promote national economic development to make a useful exploration.