Research on Foreign Exchange Risk and Enterprises Avoiding Strategy in Economic Globalization

This paper develops new strategy to help Chinese enterprises to meet the challenges from exchange rate fluctuations. Making use of foreign exchange derivatives is shown to be useful for avoiding foreign exchange risk. Due to the operation of enterprises often involves many kinds of foreign currencies, this paper proposes a cross-hedging strategy using one kind of related futures to hedge for many kinds of spot. We choose the dynamic conditional correlation model. The evidence shows the correlation of spot and futures is so important in formulating hedging strategies that can result in divergent optimal hedge ratio, so we choose the dynamic conditional correlation model.