In recent years, the RMB exchange rate has fluctuated in both directions, and its flexibility has been increasing, putting forward higher requirements for the exchange rate risk management of various market entities. Since the beginning of this year, the RMB has been depreciating against the US dollar after a shock. In April, the RMB returned to a small appreciation range again from a small depreciation at the beginning of the month. Especially since the beginning of May, the offshore RMB has increased by more than 200 basis points in total, and the two-way interval fluctuations may continue to increase. The State Administration of Foreign Exchange (SAFE) also held a meeting not long ago to improve the level of enterprise exchange rate risk management.
For enterprises participating in the foreign exchange market, it is necessary to improve the awareness of exchange rate risk and use appropriate exchange rate hedging products to avoid excessive foreign exchange risk exposure resulting in unbearable losses. For enterprises with large-scale foreign exchange receipts and payments, exchange rate fluctuations will have an important impact on their local currency earnings. If the scale of foreign exchange receipt and payment is large, even small exchange rate fluctuations, after conversion into local currency, the profit and loss will be very obvious. The State Administration of Foreign Exchange (SAFE) has repeatedly called on Chinese enterprises to strengthen their sense of risk aversion of exchange rate and be good at using hedging tools. The "streaking" behavior of enterprises in the foreign exchange market not only makes them face large exposure of exchange rate risk in the micro level, but also easily causes the resonance of the market in the macro level.
Many Chinese enterprises, even some large ones, have not established a sound hedging mechanism for the exchange rate. Some enterprises take a gambling attitude and decide the timing of foreign exchange settlement and sale according to the speculation on the trend of the exchange rate. But the exchange rate is difficult to predict, when the exchange rate is contrary to the guess of the trend, it is easy to suffer losses. This gambling mentality is reinforced by the occasional benefit of being right about currency movements.
But this approach and mindset is wrong, and both companies and individuals should recognise the fact that exchange rates are inherently difficult to predict. Even professional currency market participants are in awe of currency movements. Different from other commodity markets, the exchange rate is the exchange price between currencies, whose change is fluctuating. In addition to the real demand, speculation is an important factor affecting the trend of exchange rate in the foreign exchange market. For this reason, fundamental factors play a more ambiguous role in determining price (exchange rate) trends than do stock markets.
Many Chinese enterprises do not have appropriate hedging mechanism of exchange rate risk, which is caused by many reasons. First of all, the managers of some enterprises do not have a proper understanding of the exchange rate risk, so they will not take appropriate measures to avoid the exchange rate risk. Secondly, the use of exchange rate hedging products needs to pay a certain cost. For example, if an enterprise locks up foreign exchange in the long term, the bank needs to level the exchange rate in the foreign exchange market. In order to avoid the default of the enterprise, the bank will require the enterprise to pay a certain cost of locking up foreign exchange, and even require the enterprise to pay a certain amount of deposit. Thirdly, the financial assessment mechanism of enterprises does not pay attention to affect the application of exchange rate hedging products. If an enterprise punishes relevant personnel for improper use of hedging products in exchange rate, then specific personnel in charge of foreign exchange business of the enterprise will not actively use hedging products, but participate more in the spot settlement and sale market, because the change of spot exchange rate is a market risk, and the foreign exchange business personnel need not bear the responsibility. In addition, the profit and loss compensation caused by exchange rate fluctuations may reduce the enthusiasm of enterprises to use exchange rate hedging products. The exchange rate fluctuates up and down. Even if the hedging products are not used, some times there will be a certain loss, and some times there will be a certain exchange gain. Of course, there may also be specific factors that dissuade companies from hedging their currencies.
In the context of gradually expanding exchange rate fluctuations, it is necessary and necessary for many enterprises to use exchange rate hedging products. Enterprises should establish a rational idea of hedging exchange rate, adhere to the principle of financial neutrality, do not seek to gain excess returns from exchange rate fluctuations, but lock financial costs in advance, and strive to reduce the impact of exchange rate risk on enterprises.
From the policy level of our country, we should raise the foreign economic subjects' attention to the exchange rate issue, and help them to establish a correct idea of hedging exchange rate; From the perspective of the economic subject itself, it is necessary to understand the exchange rate issue objectively and rationally and take active measures to avoid the exchange rate risk.
（Reprinted from: CCTV.COM）
