Foreign Exchange Enterprises Are Trapped In Exchange Rate Fluctuations

In recent years, the RMB exchange rate volatility has intensified. Especially in the first half of this year, the RMB exchange rate has been devaluing. Some enterprises have suffered a large amount of exchange losses. The operation is facing more risks and uncertainties, and has to bear the risk of conversion, trading and operation. The demand for hedging to avoid exchange rate risk makes domestic calls for foreign exchange futures more and more popular. Meanwhile, the listing of financial derivatives such as foreign exchange futures and options will open up new breakthroughs for China's lagging financial futures business.

　　 foreign trade enterprise Severe fluctuation of trapped exchange rate

According to China economic net reporter, in the past, domestic trade enterprises were accustomed to the unilateral appreciation and low volatility of the RMB exchange rate. In the case of higher interest rates, borrowing foreign currency liabilities was more attractive in finance. After the two-way fluctuation of the RMB exchange rate, it is not necessarily a stable transaction. Especially when the RMB exchange rate fluctuates fiercely, enterprises may not only suffer losses due to unfavorable changes in exchange rate, but also seriously restrict the expansion of enterprises' capacity.

In order to avoid exchange losses, enterprises usually choose to shorten the order time. But in general, enterprises have a long cycle from investment to output, and the exchange rate can not be determined, resulting in enterprises unable to decide whether to increase capital expenditure, thus restricting the further expansion of production capacity and affecting the long-term and stable growth of foreign trade.

For this reason, some foreign trade enterprises bypass foreign countries to choose foreign exchange futures products for hedging, or deposit foreign currencies earned in foreign markets, and hedge their exchange rate risks in a basket of currencies. However, such operations will be cumbersome in procedure. For example, domestic enterprises' transactions in overseas markets may require cumbersome foreign exchange examination and approval, and the quota is also limited.

　　 overlapping Exchange rate futures Antecedent

Compared with western developed economies and other BRICs, China's financial futures are lagging behind. In 2013, the data of the Futures Industry Association of the United States showed that foreign exchange futures and options derivatives of the 84 exchanges in the world have become the fourth largest categories of trading goods next to interest rate derivatives. Emerging economies such as Brazil, Russia and India have also launched foreign exchange futures.

At present, China's financial futures only have two kinds of stock index futures and treasury bond futures, but in October, CIC launched the futures trading simulation of the euro exchange rate between the US dollar and the Australian dollar against the US dollar. Insiders believe that, compared to the US dollar to the RMB exchange rate, the cross exchange rate volatility is even more intense. The US dollar and Australian dollar are all the top two trading settlement currencies closely related to trade import. Domestic enterprises have great cross exchange rate risk hedging demand. Pushing the cross currency futures and pushing forward the RMB exchange rate futures will be conducive to circumvent the current China's foreign exchange control and foreign exchange policy.

Huang Zemin, director of the Institute of international finance, East China Normal University, thinks that about 1/3 of enterprises have cross exchange rate risk hedging demand, and cross exchange rate futures do not involve the RMB exchange rate, which has little impact on the market oriented reform of China's exchange rate. Taking cross exchange rate futures as a pilot project, we can minimize the risk and step by step to lay a solid foundation for the development of RMB foreign exchange futures in China.

　　 Foreign exchange futures Spot market matching

I must mention that the voice that does not support foreign exchange futures listing in the market has not stopped. Mainly because the domestic exchange rate market has not been fully liberalized, the financial market is not developed enough, and the degree of marketization is not high. The foreign exchange futures market may have risks. However, after 7 years of exchange rate reform, the RMB exchange rate marketization mechanism has initially taken shape, and has already taken the step of foreign exchange futures.

As a matter of fact, the pricing mechanism and circulation mechanism of the foreign exchange spot market are still not sound enough, and there are some obstacles to the function of foreign exchange futures. However, we can see that China is accelerating the opening of the financial market, and the development of the foreign exchange futures market obviously needs the cooperation of the spot market. According to Reuters sources, Guotai Junan Securities Company, China's main broker, has been approved by the safe to carry out spot settlement and foreign exchange business and RMB and foreign exchange derivatives business. This is the first Chinese brokerage institution to be allowed to operate foreign exchange business, and is undoubtedly a big step forward in China's financial market.

Reuters quoted market participants as saying that allowing more non banking financial institutions to participate in foreign exchange transactions is conducive to enriching market players and customer backgrounds, changing the relatively simple supply and demand structure and trading style of the RMB foreign exchange market, and improving the liquidity of the foreign exchange market.