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A Study on Exchange Rate Exposure of Chinese Banks

Li, Juan and Delport, Susan (2009)
Department of Economics
Abstract
For banks to adjust to the changing financial environment, it is essential to understand how the foreign exchange market impacts them. The purpose of this master thesis is to evaluate the effect of exchange rates movement on fourteen listed Chinese banks’ equity returns, by using the Arbitrage Pricing Theory Model. In particular, this paper analyses the three foreign currencies holding the largest trading position with China, namely the Euro, US Dollar, and Japanese Yen. This empirical study finds that Chinese banks are on average most sensitive to RMB exchange-rate movements with regards to Japanese yen. It is also found that foreign exchange exposure has some relation to bank size, with foreign exchange risk being most prominent for... (More)
For banks to adjust to the changing financial environment, it is essential to understand how the foreign exchange market impacts them. The purpose of this master thesis is to evaluate the effect of exchange rates movement on fourteen listed Chinese banks’ equity returns, by using the Arbitrage Pricing Theory Model. In particular, this paper analyses the three foreign currencies holding the largest trading position with China, namely the Euro, US Dollar, and Japanese Yen. This empirical study finds that Chinese banks are on average most sensitive to RMB exchange-rate movements with regards to Japanese yen. It is also found that foreign exchange exposure has some relation to bank size, with foreign exchange risk being most prominent for medium size banks, than for larger banks. This study tests the foreign exchange rate risk faced by Hong Kong banks, and finds that Hong Kong banks display a much larger exposure than Chinese banks face. In all, this study determines that foreign exchange rates do have an effect on the Chinese banking sector. (Less)
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author
Li, Juan and Delport, Susan
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
APT, Chinese Banks, RMB, exchange rate exposure, foreign exchange risk, Economics, econometrics, economic theory, economic systems, economic policy, Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik
language
English
id
1436621
date added to LUP
2009-06-10 00:00:00
date last changed
2010-08-03 10:52:23
@misc{1436621,
  abstract     = {For banks to adjust to the changing financial environment, it is essential to understand how the foreign exchange market impacts them. The purpose of this master thesis is to evaluate the effect of exchange rates movement on fourteen listed Chinese banks’ equity returns, by using the Arbitrage Pricing Theory Model. In particular, this paper analyses the three foreign currencies holding the largest trading position with China, namely the Euro, US Dollar, and Japanese Yen. This empirical study finds that Chinese banks are on average most sensitive to RMB exchange-rate movements with regards to Japanese yen. It is also found that foreign exchange exposure has some relation to bank size, with foreign exchange risk being most prominent for medium size banks, than for larger banks. This study tests the foreign exchange rate risk faced by Hong Kong banks, and finds that Hong Kong banks display a much larger exposure than Chinese banks face. In all, this study determines that foreign exchange rates do have an effect on the Chinese banking sector.},
  author       = {Li, Juan and Delport, Susan},
  keyword      = {APT,Chinese Banks,RMB,exchange rate exposure,foreign exchange risk,Economics, econometrics, economic theory, economic systems, economic policy,Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik},
  language     = {eng},
  note         = {Student Paper},
  title        = {A Study on Exchange Rate Exposure of Chinese Banks},
  year         = {2009},
}