Those in the financial markets in financial product sales of “vendors”, as people always like analyst attention, but also not as smooth and slick speculators, fund managers did not do anything they want more energy, but this group comprised the financial transactions The most basic power of the financial transactions not only build the most fundamental part of the building, but also occupy the financial world and the value of investments, hedge funds and investment bank status equivalent position. Please note that I pen this point, is to dig out of these people through the basic idea of the scientific logic and its application to the nowadays common concern to the management of foreign exchange reserves.

Then, the vendor’s basic philosophy of what we should learn what a big way? First track what vendors of business process: they first accept the transaction request of a party, then the opposite in the market looking for a request with the other, when both terms “match”, they will accept the request of both sides of the transaction, a deal but not for trading post, but the two sides (or one) charge a fee, bringing the business to complete. This looks simple to the simple process can not be what it is worth the fuss about?

The purpose of the transaction vendor products do not bear the risk but only for a fee, on this fundamental point, product vendors do not seek the difference (this is critical), while the only match for the conditions, such as species, quantity, period, price, and then he would propose a fee standard, if mutually acceptable, then the completion of the transaction, if accepted, the transaction end, start the next round of business. Is simple, but profound truth, fully embodies the ideas and finance no-arbitrage hedge balance principle, this is the place I am interested.

Unfortunately, not all of the harbor and the purpose of the market vendors as practitioners have to understand this basic truth. Last year in Shanghai, I had the privilege to participate in a foreign authority by the department hosted a seminar, listen to each bank’s foreign exchange traders exchange their experiences. One of the most exciting part, is a “trader Year” hosted by talk show, guests have the best title of course, traders, and television programs with You Yipin professional. Hosts and guests only one core subject: how to hedge the risk of foreign exchange transactions. Can be more than an hour’s discussion, I can hardly hear a word related to risk hedging, but rather to make the difference voices. I have repeatedly asked their staff members whispered: What is the subject of discussion in the end? Back said: hedge foreign exchange risk. I still have no chance to the two “Best” ask for advice they understand what hedge, but I understand the truth: The reason they get the best, not because of his business transactions to handle the risks of the obliterated, but lucky enough to take the risk but received extraordinary risk premium. If this is indeed a number of banks where foreign exchange gain from the risk of earnings, then they certainly are lucky, but if the commercial banks only to hedge foreign exchange risk positions, or for a fee, then the best are those behavior is undoubtedly dangerous, because one can not always be lucky.

By a small push, and one bank should not give up because of the principle of immediate interest to the absorption of foreign exchange fluctuations, how should a country management reserves? Recently, China’s holdings of U.S. debt holdings on the date the debt of praise after another. The reason is simple, the dollar fell, the yen rose, we made a choice. So what, “This is to follow the market”, “help the international exchange rate system reform,” like the popular view. In fact, the recognition of an act Ye Hao, criticizing an act worth mentioning, the most important thing is to make clear that what the basic principles of behavior. So, China’s foreign exchange management principles what is it? Is to make money? I think not.

On China’s foreign exchange management principles, we can implement its foreign exchange regime bite. China pursues a pegged exchange rate regimes essentially, is so, the most fundamental thing is to consider the level of economic development had lagged behind the need to expand foreign trade surplus Lai encourage national economy, so we not only pegged exchange rate regime type, but also the implementation of closed sales exchange rate system (now canceled). Frankly speaking, that is, the use of all foreign exchange must be managed by the state. In the process, the state Bing Bushi to earn exchange differences, but simply to facilitate the use of foreign exchange business and the right to make these companies the right to avoid the risk of exchange rate fluctuations, while the real national Que shoulder its corresponding obligations, any attempt to make money, then? Although the situation has changed now, large foreign exchange reserves, the kinds of situation is more serious, but not to make money for the purpose of basic management principles have not changed, at least not change sign. This case, the structure of foreign exchange options, but also what is the point?

Japanese yen is now up, and who can guarantee it will always be strong? U.S. dollar is now down, do not they will not be any rebound? In this sense, the risk of depreciation of a country’s foreign exchange reserves and its reserve structure is independent (in 2008 a survey conducted after the financial crisis proves the point: from the euro and the yen better than the loss of reserves a small number of U.S. dollars). Foreign exchange management is not intended to take the risk, but hedging, hedging the risk of simply not in a foreign currency to another currency appreciation to offset the depreciation, because we can not predict what kind of future foreign currency will depreciate or appreciate (because there down time with the same l). We can grasp, is that long-term and the leading money-related assets and made clear correlation hedging. Obviously, the yen is not a dominant currency, and no hedging assets, holdings of Japanese bonds much lower risk of foreign exchange reserves, it is less magnified this risk.

China’s foreign exchange reserve management to maturity, and does take time, but if even the most basic principles of foreign exchange reserves management are to grasp, again a long time that only a history lesson. May wish to learn of the financial market vendors it may be more valuable than listen to experts.

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Category: Business Management
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