The People's Bank of China announced on July 21, 2005 that China would begin to implement a managed floating exchange rate system based on market supply and demand, with reference to a basket of currencies. This means that the RMB exchange rate fluctuations will become more frequent, the exchange rate risk faced by enterprises will increase. The study validated that risk management is a tool used to protect shareholders' value and ensure the company's continued successful operation. This paper made identification and measurement of foreign exchange risk and it propose that by adopting appropriate foreign exchange risk prevention tools, the enterprises can establish foreign exchange risk precaution mechanism with their own characteristics so as to reduce the loss caused by exchange rate change.
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