Explore the Application of Financial Engineering in the Management of Exchange Rate Risk
School of Economic SCUEC, Wuhan, 430074, Hubei, China
In the background where the domestic enterprises commonly have a weak protection consciousness against the exchange rate risk, this article makes a deep analysis based on the definition of exchange rate risk and its cause. By comparison of the traditional management method of exchange rate risk with another one based on financial engineering tools, it also deeply analyzes the method to use the financial engineering technology in the management of exchange rate risk, and concludes the primary purpose of exchange rate risk management is for hedging. This article proposes an optimal analysis method in two aspects, namely the minimum risk and maximum efficiency, for the forward-based optimal hedging, and proposes an optimal analysis method of dynamic hedging for the optimal hedging of option-based tools. Based on the description of the application of financial tools in foreign exchange futures, forward contract, currency exchange and foreign exchange option, it makes an empirical analysis on the management of foreign exchange risk by taking an assumed T company as the carrier and based on the trading tools of forward foreign exchange and currency option, which describes the operation procedure of financial tools in a more direct way and proves the efficiency of the optimal analysis method of this article.
Key words: financial tool / exchange rate risk / futures-based tool / option-based tool / hedging
© Owned by the authors, published by EDP Sciences, 2015
This is an Open Access article distributed under the terms of the Creative Commons Attribution License 2.0, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.