2. Exchange rate risk, also known as foreign exchange risk, refers to the possibility that economic entities will suffer losses due to exchange rate changes in their economic activities of holding or using foreign exchange.

3. ForeignExchangeExposure refers to the possibility that the value of assets (creditor's rights, interest) and liabilities (debts, obligations) expressed in foreign currency will increase or decrease due to unexpected changes in foreign exchange rate in a certain period of time.

4. The Basel Committee on Banking Supervision divides interest rate risk into four categories: repricing risk, basis risk, yield curve risk and option risk.

5.

Effective ways for foreign trade enterprises in China to manage interest rate risk

Foreign countries generally use financial instruments and financial derivatives to effectively avoid interest rate risks. Government departments, financial institutions, foreign trade enterprises and other relevant stakeholders generally realize the conversion of the interest rate structure of the original debt through the rational use of financial instruments and derivatives, such as interest rate swaps, forward interest rate agreements, interest rate swaps, interest rate futures, interest rate options, etc.

(1) interest rate swap

Interest rate swap is one of the important derivatives to manage assets and liabilities and avoid interest rate risk. Its main feature is that fixed interest rate assets (liabilities) and floating interest rate assets (liabilities) can be converted to each other. This makes interest rate swap can effectively manage interest rate risk. In addition, it can also be converted between different currencies, so that the converted interest rate structure or currency can better meet the needs of enterprise interest rate risk management.

(2) Forward interest rate agreement

Forward interest rate agreement is an over-the-counter trading tool. Because the term and nominal capital of forward interest rate agreement are relatively free, it has certain advantages compared with interest rate futures, and its transaction scale has increased steadily since its appearance, which is one of the important tools for economic entities to guard against interest rate risks. For domestic foreign trade enterprises, the interest rate level of a certain interest period in the future can be determined through the forward interest rate agreement. Therefore, if an enterprise has floating interest rate debt, it can use this financial tool to determine the interest rate level of the next interest period in advance to avoid some adverse effects caused by interest rate rise.

(3) Interest rate swap

Interest rate swap allows enterprises to freely convert debts between different interest-bearing methods. Therefore, when the interest rate rises, enterprises can change the interest-bearing method of debt from floating interest rate to fixed interest rate. When the interest rate is lowered, it changes from fixed interest rate to floating interest rate, which effectively reduces the debt cost of enterprises.

(4) Interest rate futures

Interest rate futures are similar in structure to interest rate forward agreements, but they are traded on the floor. Because interest rate futures have certain provisions in terms of term and nominal principal, and all aspects are standardized, it is more convenient to trade. Interest rate futures is a very popular financial derivative, which is widely used in hedging and speculation of foreign trade enterprises.

(5) Interest rate option

The biggest difference between interest rate option and interest rate futures is that the option gives the buyer the right to trade, and it is an obligation for the holder of futures to trade regardless of profit or loss. Therefore, the biggest possible loss of option buyers is the option price, and the possibility of its gains is infinite, while the possibility of futures gains and losses is infinite. The ways of using options to avoid interest rate risk include hedging with on-site options and hedging with off-site options. Interest rate options for OTC trading mainly include interest rate ceiling, interest rate floor and double interest rate ceiling. Generally speaking, these option agreements are provided by financial institutions as the other party to the option agreements and traded with interest rate hedgers. The nominal principal and term of interest rate options traded over the counter are relatively free. In the case of longer term and more than one interest payment, options such as interest rate ceiling can be regarded as a combination of a series of interest rate options with different terms.

For example, when the interest rate is at a low level, based on the principle of prudence, foreign trade enterprises can adopt the following strategies: appropriately increasing the debt ratio, appropriately expanding, investing or expanding the production scale; If interest rates are expected to rise in the future, enterprises should try to choose long-term trade financing instead of short-term foreign debt; If possible, you should repay the borrowed foreign debt with high interest rate (including long-term loans) in advance, and then borrow at the current interest rate; When trade financing happens again, it is best to use a fixed interest rate for the contract interest rate.

If the interest rate is already high and may increase, the measures that enterprises can take are as follows: try to reduce borrowing new foreign debts, thus reducing the risk of interest rate expenditure and avoiding the reduction of corporate cash flow; If it is judged that the interest rate may decrease, enterprises can choose to adopt short-term trade financing to avoid long-term borrowing. If long-term loans are needed, the contract interest rate should fluctuate as much as possible.

If the financial personnel of foreign trade enterprises can accurately predict the direction and extent of future interest rate adjustment, then enterprises can reasonably avoid interest rate risks through forward interest rate agreements, and when the amount of forward interest rate agreements increases, the interest rate level can be further reduced.