Measurement Of Foreign Exchange Reserve Risk In China

Foreign exchange reserve management problem has always been the research hotspot and frontier problem in domestic and foreign academic circles. Chinese foreign exchange reserve increased rapidly and substantially since1994, especially since2001, Chinese foreign exchange reserve surged from＄165,574billion to＄3.821315trillion, the foreign exchange reserves has increased by nearly20times in ten years, including a record created by2007year whose foreign exchange reserve increased about＄461,905billion, equivalent to1.265billion dollars a day. The steady growth of foreign exchange reserves brought new challenges to the management authorities. With such huge foreign exchange reserve assets, the national monetary authorities should be caution to manage and arrangement, in order to guarantee both safety, liquidity and profitability of foreign exchange reserves, as well as avoid to bring huge waste of resources. This paper uses the VaR-GARCH model to measure the four kinds of currency assets and the risk of portfolio. VaR-GARCH model means VaR method and GARCH model. VaR (Value at Rist), also called Value at risk, measuring the the maximum possible loss of assets in a probability of a certain level (confidence level) and a specific period of time. This article adopt the GARCH model to depict the yield of foreign currency assets, in order to better fitting peak fat-tailed distribution characteristics of financial assets, this paper established the t distribution, GED distribution under the GARCH (1,1), TGARCH (1,1) and EGARCH (1,1) model, compare the parameters of the significance and the status of the fitting in different model, and selected t distribution under the GARCH (1,1) to extract the monetary asset volatility. The empirical results show that the risk of a dollar assets are the least and risk of euro assets is the greatest; as Sterling and the yen only taken small amount, the impact is also small, risk of sterling assets is greater compared to the risk of yen assets. Finally, the paper puts forward some Suggestions based on the current situation of Chinese foreign exchange reserve.