How to deal with risks in foreign exchange investment

Approaches to managing trading risk can be divided into three categories:

1. Precautionary measures that can be selected when signing a contract, including choosing a good contract currency, adding contract terms, and adjusting prices or interest rates.

①Choose the contract currency. In economic transactions related to foreign trade and lending, the choice of which currency to sign a contract as the currency for valuation and settlement or the currency for valuation and settlement is directly related to whether the transaction entity will bear exchange rate risks. The following basic principles can be followed when choosing a contract currency: First, try to use the domestic currency as the contract currency. Second, export and loan capital export strive to use coins, that is, currencies whose exchange rate shows an appreciation trend in the foreign exchange market.

②Include currency preservation clauses in the contract. Currency hedging refers to choosing a currency that is inconsistent with the contract currency and having a stable value, and converting the contract amount into the selected currency. When settlement or liquidation, the amount expressed in the selected currency is used to complete the receipt and payment in the contract currency. At present, the currency hedging clauses used by various countries are mainly "basket" currency hedging clauses, which is to choose multiple currencies to hedge against the contract currency, that is, when signing the contract, determine the exchange rate between the selected multiple currencies and the contract currency, And stipulate the weight of each selected currency. If the exchange rate changes, the amount of the contract currency received and paid will be adjusted accordingly at the time of settlement or liquidation according to the range of exchange rate changes at that time and the weight of each selected currency.

③Adjust the price or interest rate. In a transaction, it is impossible for both parties to obtain a favorable contract currency. When one party has to accept an unfavorable currency as the contract currency, it can strive to make an appropriate adjustment to the price or interest rate in the negotiation: For example, it is required to appropriately increase the export price denominated in soft currency, or the loan interest rate denominated in soft currency; it is required to appropriately reduce the import price settled in coin denomination, or the loan interest rate denominated in coin.

2. Financial market operations. After the transaction contract is signed, foreign-related economic entities can use the foreign exchange market and currency market to eliminate foreign exchange risks. The main methods include spot exchange, futures exchange, futures trading, option trading, borrowing and investment, borrowing-spot exchange-investment, foreign currency bill discounting, interest rate and currency swap, etc.

① Spot foreign exchange transactions. This mainly refers to foreign exchange banks using spot transactions in the foreign exchange market to conduct balanced foreign exchange transactions on their daily foreign exchange positions.

② Borrowing and investment. It refers to the purpose of eliminating foreign exchange risks by creating debts or claims in the same currency, the same amount, and the same term as future foreign exchange income or expenditure.

③Discounting of foreign currency bills. This method is not only conducive to accelerating the capital turnover of exporters, but also achieves the purpose of eliminating foreign exchange risks. When the exporter provides financing to the importer and owns the forward foreign exchange bill, it can take the forward foreign exchange bill to the bank for discount, obtain foreign exchange in advance, and sell it to obtain local currency cash.

3. Other management methods. In addition to the above-mentioned methods of signing contracts and using financial operations, there are other methods, mainly: advance or delay, matching, and insurance.