Model And Application Of Invoicing Currencies Diversification Based On The Modern Portfolio Theory

The import and export are one of carriages that drive China's fast-growing economy,but China's foreign trade has shown a marked decline as a result of the volatility of the RMB exchange rate,the slow recovery of the developed economies and the decline in international commodity prices.Faced with the above severe situation,China is trying to boost its foreign trade.On the one hand,China is vigorously promoting the "Belt and Road Initiative" abroad,trying to trade with emerging economies.On the other hand,China is committed to the "supply-side structural reform" at home,improving the added value of export products,optimizing the export product structure.However,with the frequent exchange rate fluctuation and the diversified export countries and products,invoicing in a single currency makes the export enterprises be faced with increasing exchange rate risk.In the background of the new export situation,this paper comes up with invoicing in multinational currencies at the same time,trying to reduce the increasing exchange rate risk.The choice of invoicing currencies is influenced by the macro,industry and micro factors,which is a typical profit problem under uncertain conditions.The portfolio theory can solve this type of problems and is widely applied in many areas.After introducing the factors that influence the choice of invoicing currencies and related literature research,this paper introduces the method and applications of portfolio theory in detail.Base on the above,this paper applies the portfolio theory to realize invoicing in multinational currencies at the same time.After introducing the new method,this paper applies it to the hypothetical trade scenarios,trying to analyze the influence of the number of invoicing currencies on the choice of the invoicing currencies.What is more,this paper compares the results in different periods under the background of the frequent exchange rate fluctuation of RMB.This paper compares the results of exporting to different countries under the background of "Belt and Road Initiative".This paper compares the results of exporting different products under the background of the "supply-side structural reform".After analyzing the influence of the number of invoicing currencies on the choice of the invoicing currencies,we find that invoicing in more than three currencies at the same time is better than invoicing in three currencies or a single currency,which proves that invoicing in multinational currencies at the same time is an effective strategy.After comparing the results in different periods,we find that the increasing volatility of the RMB exchange rate leads to a significant reduction in the expected return while the risk is increasing.What is more,the RMB is no longer included in the portfolio.After comparing the results of exporting to different countries,we find that different export countries mainly affect the levels of the expected return and the risk and its influence on the currencies structure is not too much.After comparing the results of exporting different products,we find that the influence is significant in three aspects:First,it may lead the method of invoicing in multinational currencies cannot disperse risk;Second,it can affect the levels of the expected return and the risk;Third,it can have some effect on the currency structure.Therefore,this paper suggests that export enterprises can try to invoice in multinational currencies and add related terms to the trade agreement to enrich the invoicing forms.However,taking the many factors that affect the invoicing currencies into consideration,export enterprises need decide based on the actual situations,instead of taking the same strategy all the time.Besides these factors,they should also consider themselves risk tolerance.In the progress of decision,the government can help provide related information,which can make the decision more scientific.What is more,this paper's results can also bring useful inspirations to the internationalization of RMB.On the one hand,China should avoid the frequent fluctuation or depreciation of the RMB exchange rate by adopting a stable exchange rate policy.In this way,we can directly minimize the exchange-rate risks faced by export enterprises.On the other hand,it is necessary to optimize the product structure and expand industrial scale.In this way,we can enhance China's international strength and support the internationalization of RMB.