Analysis On Combination Hedge Plan For Foreign Exchange Investment Projects

Since 2005, with the implementation of formation mechanism reform for Chinese RMB exchange rate, RMB exchange rate reforms towards market-oriented, which increases the flexibility and fluctuation of exchange rate. China is in the context of economic globalization, more and more domestic enterprises and financial institutions are involved in foreign exchange-related investment projects, import and export trade, etc. Therefore, these enterprises and financial institutions have to face the increasing risk in foreign exchange, how to hedge this kind of risk effectively is an urgent problem. The developed countries usually adopt foreign exchange derivatives to hedge risk. In their opinions, the use of financial derivatives will increase the value of company. This dissertation is accordance with the above ideas, and to avert risk from the perspective of foreign exchange derivatives, while the imperfections of our foreign exchange derivative market present a great challenge for foreign exchange hedging.The structure of this dissertation is based on the procedure of foreign exchange hedging. The first chapter is about the background and significance of this study, and proposes the importance and urgency for corporates and financial institutions to hedge foreign exchange. The second chapter firstly discusses the basic theory and rate forecasts, recognizes the connotation, types and manifestations of foreign exchange risk, and helps companies and financial institutions to identify their foreign exchange risk. Then the factors affecting foreign exchange risk are discussed, and the macro forecast for exchange rate movements is also proposed. Finally, NDF is adopted to forecast exchange rate and increase the accuracy of forecast. The third chapter is manly about the measurement methods and combinations of exchange rate risk hedging program. Firstly, the measurement model for exchange rate risk based on VAR model is introduced and discussed from the characteristic aspects of risk measurement. By comparing different foreign exchange derivatives, and considering the hedging principles and requirements, companies can be classified according to the degree of risk tolerance. Then select the appropriate foreign exchange hedging program for different categories. The forth chapter considers the actual situation of China, and illustrates the challenges of exchange rate risk hedging in exchange project from two aspects including internal operations and external hedging. The fifth chapter proposes some recommendations for improving foreign exchange controls and derivatives of China, then discusses the future of foreign exchange hedging.This dissertation firstly predicts the risk of foreign exchange and measures the current risk, then adopts the effective programs for foreign exchange hedging according to the actual situation, finally proposes appropriate questions and suggestions.