Research On Foreign Currency Exchange Rate Risk Management Strategy Of International Contractors Of China

In recent years,as the domestic construction market has gradually become more saturated,the development of the foreign market is getting better.With the proposal of the Belt and Road initiative,many domestic construction enterprises are going abroad to undertake the engineering projects,however,due to the complex and volatile international situation,states participation,long-term operation,and various payment currencies,etc,contracted projects overseas have greater risks comparing to the domestics.Among ENR’s top 250 global contractors in 2021,44 companies are listed in Europe,with international turnover accounting for 51% of the total.78 Chinese companies which are on the list,for only 26% of the total.In addition to the factors such as project size 、 technical level and profit mode,the relatively low turnover of international contractors of China,lacking of the exchange rate risk management of international contractors of China has become one of the important factors restricting their profits.Since the beginning of 2020,Affected by COVID-19(novel coronavirus pandemic),the construction industry has stopped production worldwide.Political turmoil,trade friction,and commodity price fluctuations have caused a series of shocks to the global construction market,and China’s foreign contracting enterprises are facing severe challenges such as project stagnation,payment delay,and increased two-way exchange rate fluctuations.In the post-pandemic era,the competitive landscape of the overseas contracting market will be reshaped.Currency fluctuations are more frequent and unpredictable,in the face of complex foreign exchange market,foreign contract enterprises "going out" for its foreign currency inflows and outflows,will inevitably face greater exchange rate risk,exchange rate risk management ability directly affect the enterprise’s operating results and future development potential,How to manage exchange rate risk scientifically has become an important issue that multinational enterprises must face in their daily operation.This thesis introduces the research background,significance,and status at home and abroad of international contractors of China exchange rate risk management on the basis of management、project risk management、 project cost management and econometrics,dividing academic exchange rate risk management mode into two methods,operating hedge and financial hedging.This thesis selects the relevant data of China’s listed companies with foreign contracting business in recent five years for empirical research,analyzes the impact of operational hedging and financial hedging on enterprise value,and selects the key variables of such enterprises to improve the level of exchange rate risk management for empirical test.Choosing corporation Z as a case,analyzes the lack of awareness in the exchange rate risk management,the unsound internal governance,lack of innovation management,the weak bargaining power about exchange rate risk management in foreign contracting engineering company.The main reason is that the exchange rate risk management motivation is not clear,management structure is unreasonable,insufficient professional talents,risk hedge means,etc.,This thesis argues that in order to improve the foreign exchange risk management level of China’s foreign contracting enterprises,it can be carried out by establishing exchange rate risk management objectives,optimizing exchange rate risk management processes,improving the level of management personnel,adopting flexible and diversified hedging strategies.However,the core exchange rate risk management strategy is to manage exchange rate risk by taking operational hedging as the mainstay and financial hedging as a supplement.This thesis focus mainly on how Chinese foreign engineering contracting enterprises deal with the exchange rate risk,and proposes management countermeasures,and improves the relevant theories of exchange rate risk management,which has reference value for China’s foreign engineering contracting enterprises to deal with the exchange rate risk.