In international trade, the following methods will be used to avoid exchange rate risk: currency selection method, currency preservation method, early mistake method, pairing management method, international credit method, foreign exchange trading method, combination of foreign exchange trading method and international credit method, and currency risk insurance method. The following highlights a few of them.
2. 1 currency selection method
–Currency selection method refers to the management method for enterprises to reduce the exchange rate risk by choosing the pricing currency in foreign-related business. There are five specific operations:
1, pricing method in functional currency. Choosing local currency pricing can make economic entities avoid currency exchange problems, thus completely avoiding exchange rate risks. However, the local currency is a foreign currency for foreigners, which means that the premise of this method is that the other party can accept it, so as not to make enterprises lose trade opportunities.
–2. Convertible currency valuation method. The adoption of convertible currency pricing by enterprises can not reduce the exchange rate risk itself, but it enables enterprises to pass on the subsequent exchange rate risk through foreign exchange transactions when they predict that the exchange rate changes are unfavorable.
–3. Coin valuation method. Coins refer to currencies with an upward trend in exchange rate. Exporters or foreign currency creditors can use coins to evaluate their currencies, so that they can benefit from exchange rate changes.
–4. Soft currency pricing method. Importers or foreign currency debtors can avoid the possible losses caused by exchange rate fluctuations by choosing soft currency pricing.
–5. Multi-currency pricing method. If it is stipulated in the economic contract that multiple currencies are used for pricing, the impact of the rising exchange rate of one currency will be offset by the falling exchange rate of other currencies to a certain extent, then both parties to the transaction can reduce the exchange rate risk.
2.2 Currency preservation method
Currency hedging method refers to the exchange rate risk management method in which an enterprise pays in a currency acceptable to the other party in a foreign-related economic contract and uses a stable unit of value for hedging. There are three specific operations:
–1.Gold hedging method. The enterprise converts the denominated currency on the signing date into a certain amount of gold through the gold preservation clause, and then converts a certain amount of gold into a certain amount of denominated currency on the payment date according to the current gold price. In this way, no matter how the exchange rate of the denominated currency fluctuates, it will not significantly affect the income or expenditure of both parties. Provided that the price of gold remains stable.
–2. Hedging method of a basket of currencies. Enterprises choose SDR or other currency basket to hedge the contract amount, which can reduce the foreign exchange risk to a certain extent, because the value of the currency basket is relatively stable.
–3. Coin hedging method. In the trade contract, the enterprise allows the other party to pay in soft currency, and at the same time requires the other party to adjust the payment amount of soft currency according to the exchange rate change of coins against soft currency.
2.3 Make mistakes first, then make mistakes.
The method of making mistakes in advance refers to that the economic subject settles the foreign currency creditor-debtor relationship in advance or after making mistakes according to his own exchange rate expectations, so as to avoid foreign exchange risks or obtain risk rewards. This method is a way to offset foreign risks in international payment by predicting the changing trend of payment rate, that is, by changing the collection and payment cycle of foreign funds. Specific operations are shown in the following table ③:
Forecast foreign exchange fluctuation
[Soft local currency]
Forecast the decline of foreign currency
(hard local currency)
Exporter (foreign currency receipt and payment)
Deferred foreign exchange collection
Advance foreign exchange
Importer [foreign currency payment]
Prepaid foreign exchange
Deferred payment of foreign exchange
This method is very easy to understand, but one of the key points lies in the correctness of forecasting the exchange rate trend, and one of the key points lies in how the enterprise personnel can make the other party accept it at the right time and place through their own intelligence. Therefore, this method can be adopted between enterprises within multinational companies.
2.4 the combination of foreign exchange trading law and international credit law
The most commonly used comprehensive exchange rate risk management methods for foreign-related enterprises include BSI method and LSI method: BSI method (borrowing-spot-investment), that is, borrowing-spot foreign exchange trading-investment method. Refers to the risk management method of eliminating exchange rate risk through borrowing, spot foreign exchange trading and investment. LSI (Lead-Spot-Invest) means: settlement of foreign exchange in advance-spot foreign exchange trading-investment method. Refers to the risk management method of eliminating exchange rate risk through procedures such as settlement of foreign exchange in advance, spot foreign exchange trading, investment or borrowing.
2.5 the use of derivatives to avoid corporate transaction risks
Enterprises in two developed countries generally use financial derivatives to avoid the risk of foreign exchange transactions, and their basic functions are trade and investment. Financial derivative is a kind of financial contract, and its value depends on one or more basic assets or indexes. Common hedging instruments include forwards, futures, options and swaps.
Forward foreign exchange is a non-standardized contract, which refers to the foreign exchange business activities in which the buyer and the seller sign a contract and agree to make delivery in a certain period of time in the future according to the pre-agreed exchange rate, currency, amount and date. And neither party needs to receive and pay the corresponding currency immediately.
Foreign exchange futures refer to legally binding standardized foreign exchange forward contracts with standardized trading units, designated delivery months, daily settlement and unique delivery methods. Different forward foreign exchange markets have slightly different provisions on standardized contracts for foreign exchange futures. Futures trading has a fixed trading place, and buyers and sellers need to pay their own margin and commission, and can buy and sell foreign exchange futures contracts through the brokerage letter of credit exchange.
A foreign exchange option is an option contract. Its holder, the option buyer, has the right to buy or sell a certain amount of foreign exchange assets at a specified price during or before the contract period, while the option seller is obliged to sell (or buy) the foreign exchange assets bought (or sold) by the option buyer at the request of the buyer. The buyer of the option obtains a right rather than an obligation, which can be invalidated when it expires, and only the prepaid option fee is lost.
Foreign exchange swap is buying and selling spot foreign exchange, and then selling or buying forward foreign exchange contracts. In essence, it is to use the time difference to make two transactions with the same amount of foreign exchange but opposite directions, which is a combination of spot transaction and forward transaction or forward transaction and forward transaction. All foreign exchange risks can be eliminated through foreign exchange swap transactions.
Third, the operation of hedging methods under the background of RMB appreciation
Under the background of RMB appreciation, the hedging form of foreign-related enterprises in China is more severe. The appreciation of RMB will have a great impact on foreign-related enterprises in China, especially foreign trade export enterprises. The operation of hedging methods of foreign-related enterprises in China will also produce new situations. The following is the specific operation of hedging method under the background of RMB appreciation.
3. 1 currency selection method under the background of RMB appreciation
Under the background of RMB appreciation, under normal circumstances, RMB is an absolute coin, and we will carry out specific operations on this basis. It is suggested to adopt local currency pricing, convertible currency pricing and multi-currency pricing.
3.2 the combination of foreign exchange trading law and international credit law under the background of RMB appreciation
When the exporter has future foreign exchange income, in order to prevent the fluctuation of the exchange rate of foreign currency receivable, he first borrows the same foreign currency as the foreign currency receivable, shifts the time risk to the present, and then signs a spot contract with the bank to sell the borrowed foreign currency to the foreign exchange bank for local currency exchange. The risk of price fluctuation between foreign currency and local currency does not exist. Thirdly, the investment period of this local currency is the same as that of accounts receivable, so that the loan can be repaid with accounts receivable when it expires. The rest is local currency investment with interest.
When importers have future foreign exchange expenditures, they should immediately borrow local currency. Then sign a spot contract with the bank, sell the borrowed local currency and buy back the foreign currency for investment. The loan term and investment term are consistent with the term of accounts payable. In this way, when the accounts receivable expire, the recovered investment will be used to pay the accounts payable. The rest is the repayment of local currency loans, eliminating foreign exchange risks.
3.3 Derivatives Operation for Enterprises to Avoid Trading Risks under the Background of RMB Appreciation
Under the background of RMB appreciation, the key to using financial derivatives to avoid foreign exchange risks lies in the correct expectation of RMB appreciation space. The following example ④ illustrates:
Application of foreign exchange forward contract;
For example, a company in China exported a batch of goods worth $654.38 million. The contract stipulates that payment will be received in six months. In order to prevent exchange rate losses caused by RMB appreciation six months later, the company signed a six-month forward contract with Bank of China and sold 654.38 million+USD. Assume that the forward exchange rate of USD against RMB is 1 USD =797. When signing a forward contract with RMB 20, after 6 months, regardless of the exchange rate change, the company sold USD 654.38+million to the bank and got RMB 79.72 million. If RMB appreciates after 6 months, the exchange rate will become 1 USD =792. 10 RMB. If the company does not use forward contracts to avoid foreign exchange risks, the company's profit will be reduced by 510,000 yuan (51=10 * (797.20-792.10).
Application of foreign exchange swap contracts;
For example, a trading company in China exported products to the United States and received a payment of $5 million. The company needs to convert the payment into RMB for domestic expenditure. At the same time, the company needs to import raw materials from the United States and pay $5 million in three months. At this time, the company can take the following measures: make a three-month foreign exchange swap between US dollars and RMB: sell 5 million dollars immediately, buy the corresponding RMB, buy 5 million dollars in three months and sell the corresponding RMB. Through the above transactions, the company can bridge the capital gap and avoid risks.
In practice, it is necessary to choose the above methods according to their own conditions and comprehensively use various methods to improve the ability of enterprises to avoid foreign exchange risks more effectively and reduce the losses caused by exchange rate fluctuations.