The Case Study Used to Analyze How to Use Financial Derivative to Hedge Foreign Exchange Risk

Abstract

In recent years, the economic cooperation between China and the rest of the world has gradually expanded, and the volume of import and export has been rising year after year. Foreign trade has become an important source of benefits for many enterprises. And after the reform of Chinese exchange rate system in 2015, the RMB exchange rate changes more frequently and the range is relatively large. In this context, many Chinese enterprises with foreign trade are facing the pressure brought by exchange rate fluctuations. This means that if an enterprise fails to reasonably manage foreign exchange risks, it may suffer serious exchange losses and thus affect the normal operation of the company. This paper taking China Southern Airlines Group Co., Ltd. and Fuyao Glass Industry Group Co., Ltd. as examples to analyzes how these two enterprises use financial derivatives to hedge foreign exchange risks to help them reduce losses or increase profits and evaluate the hedging effect of these financial derivatives. At the end of the article, the author also puts forward some relevant suggestions.