Foreign Exchange Risk Management And Prevention Of Enterprises Which Exports To Eu

Sino-European trade occupies a significant position because of the EuropeanUnion is the largest trading partner of China, meanwhile, China is also the secondlargest trading partner of the European Union. The RMB exchange rate formationmechanism has become more flexible and the trading band has been ever widenedsince the reform of exchange rate in2005. However enterprises are now facing anincreasingly risk in exchanging between Euro and RMB, especially a more frequentexchange rate volatility ae well as a wilder fluctuation when compared to U.S.dollars.Mainly because of the instability of domestic forex market and lack of riskmanagement awareness, etc. In this way, enterprises dealing with European exportsare facing a wider rate risk. There’s no doubt that these enterprises will sufferconsiderable economic losses if we do not take positive and effective riskmanagement. Therefore studies on exchange rate risk management of exportenterprise are of great practical importance.At the begining of this dissertation, I’ll give an introduction of the developmentand status quo of Sino-European trade. To point out the necessity of risk managementtowards Euro by analysing the past fluctuation of both Euro and U.S.dollars as well asthe comparison between the two, through which we can figure out the one with Eurois more frequent and with a wilder fluctuation. Then I’ll emphasise on the imoportanceof risk management by analysing the status quo of the current exchange rate riskmanagement, from which we can get the conclusion that there’re limit hedginginstruments as well as risk aversions for European export enterprises. In the followingpart I will explain the drawbacks such as the undeveloped forex market, singleproduct structure and trade expiry.Through the empirical study of the relevancebetween forward rate and spot rate, we can easily find there lacks effectiveness inforward exchange market. It is difficult for enterprises to conduct exchange rate riskmanagement by using domestic hedging instruments. Lastly I will give thecorresponding solutions according to the prombles we have from both a enterpriselevel and a government level.