Research On Foreign Exchange Risk Exposure Measurement And Hedging Of W Mining Company

With the continuous advancement of the “Belt and Road” construction,Chinese export companies have continued to increase their efforts to “go global”.In 2020,the total value of my country's import and export of goods trade was 32.16 trillion RMB,an increase of 1.9% over2019.Among them,the total export value reached 17.93 trillion RMB,a year-on-year increase of 4%.Although Chinese export companies have achieved outstanding results,with the global spread of the new pneumonia epidemic and the deep adjustment of the world economy,the fluctuation of the RMB is also expanding.Foreign exchange risk has become one of the important risks faced by Chinese export companies and also one of the key factors affecting companies' income.For a long time,Chinese export companies have had a weak sense of foreign exchange risk management.The historical reason lies in the fact that before the exchange rate reform in 2005,China implemented a floating exchange rate system pegged to the US dollar.Small and medium-sized export companies did not need to conduct foreign exchange risk management,which also led to the lack of basic concepts of foreign exchange risk hedging.However,after the exchange rate reform,the era of two-way fluctuations in the RMB exchange rate has begun.Not only has its volatility expanded,its trend is also more difficult to predict.At this time,if the export companies did not pay attention to foreign exchange risk or effectively manage it,it was likely to bring incalculable losses.Based on this,this thesis takes W Mining Company as an example to calculate its trading risk exposure,translation risk exposure,and economic risk exposure,and analyze the reasons for each type of risk.On this basis,in view of the above three foreign exchange risks,different hedging tools were selected to manage them,and the overall hedging effect was analyzed.Finally,from the perspective of management system,further countermeasures and suggestions for strengthening W Mining Company's foreign exchange risk prevention and management capabilities are put forward.The thesis has three main findings: First,transaction risk,translation risk and economic risk are the main foreign exchange risks faced by W Mining Company.From the perspective of the reasons,the transaction risks faced by W Mining Company mainly come from the long recovery period of export payment and the increasing number of non-US dollar currency settlement orders.The main reason for the conversion risk faced by W Mining Company is the change in the local currency value of the asset or income item caused by the exchange rate change when the company prepares the financial report.The economic risks faced by W Mining Company are mainly due to changes in the company's product prices,sales volume,market share and other intermediate variables due to exchange rate fluctuations,which will affect its earnings.From the perspective of economic consequences,the exchange loss caused by transaction risk to W Mining Company exceeds the other two risks.Second,by choosing different foreign exchange financial instruments to conduct hedging analysis on the foreign exchange trading risks of W Mining Company,it is found that although the hedging effects of different instruments are different,they can all play a certain degree of hedging effect.Before adopting hedging tools to hedge foreign exchange risks,W Mining Company's foreign exchange losses in 2017 and 2018 were as high as USD 891,200 and USD 655,300 respectively.However,after the foreign exchange risk hedging in the second half of 2019,the exchange loss and excess of that year was converted from the exchange loss of USD102,300 in the first 5 months to the exchange gain of USD22 million in the next 7 months.Third,for the conversion risks faced by W Mining Company,more suitable hedging tools include balance sheet neutralization method,asset-liability hedging method,and risk hedging method.Among them,the balance sheet neutralization method and the asset liability preservation method adjust the structure of risk assets and risk liabilities denominated in foreign currencies in the balance sheet to achieve the purpose of hedging and converting risks,which is more suitable for W Mining Company.The risk hedging method needs to predict the expected converted loss,which increases the difficulty of foreign exchange risk management.Fourth,in view of the economic risks faced by W Mining Company,because exchange rate fluctuations do not directly affect the company's profits,but indirectly affect its profits through factors such as product prices,sales,and market share.Therefore,it is related to transaction risks and Compared with converted risks,economic risks are more difficult to prevent and hedge.In this case,operational hedging tools are more suitable for the management of foreign exchange economic risks of W Mining Company than financial hedging tools.Based on the above research conclusions,the corresponding policy enlightenments are finally put forward from the three perspectives of enterprises,financial institutions and the government,aiming to help Chinese small and medium export enterprises improve their foreign exchange risk prevention and management capabilities,so as to achieve stability and long-term progress in the process of “going out”.