Research On The Exchange Rate Risk Management Of M Company

When we entered 21 st century,our China ship building industry had been tremendously improved,showing in improvement of international cooperation,exportation both in ships’ number and revenue.In this way,our advantage in international ship building market is established and China becomes the one of the most important ship building base in the world.Also,China ship building industry is mostly oriented and accompanying with the deepening of global cooperation,our ship building companies are exposed more and more to the risk of foreign exchange rate fluctuation as well as enjoying the benefits from international cooperation.As a result,the risk of exchange rate fluctuation should be strictly managed.However,present administration on risk of foreign exchange rate is not well organized and the managing tools are to some extent complicated.This article first analyze the present situation in shipbuilding industry and its characteristics,followed with risk definition and classification,then VAR method is used to evaluate the risk and financial tools and non-financial tools are summarized based on the experience of shipbuilding industry in Japan and Korea.Base on those above,and according to the situation of M company,the key exchange risk of this company is found and evaluated.Finally,currency selection and down payment increase from non-financial tools,forward currency agreement and forward currency options from financial tools are chosen to manage the exchange rate risk.Due to this,the risk exposure is effectively decreased.Thus,the conclusion is M company never highlight the vitality of exchange rate risk’s differentiation and evaluation.As a result,no measure was taken to cover the risk.The suggestion to M company is to fully define risk which need to be managed,evaluate the risk using VAR method,then use those non-financial and financial tools to fully dissipate the risks.