Dissertation > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Exchange rate,foreign financial relations

The Study on Exchange Rate Exposure of Chinese Listed Company of Textile and Garment Industries

Author MaZuo
Tutor GuYu
School Dalian University of Technology
Course Finance
Keywords Exchange Rate Exposure Textile and Garment Industry Event Study Asymmetry
CLC F832.6
Type Master's thesis
Year 2011
Downloads 24
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China’s central bank announced the implementation of the exchange rate formation mechanism reform in July 2005, the managed floating exchange rate regime adapted to China’s current stage of economic development and market structure, which play a significant role in promoting rapid development of the China’s economy. However, at the same time, the flexible exchange rate regime promotes frequent fluctuations of the exchange rate. For enterprises, the uncertainty of this impact is difficult to predict. Appreciation of the RMB in short term changes the book value of firm’s business assets, liabilities, revenue, cost in the industry, and then change its operating revenue by exchange gains or losses. After China’s accession to the WTO, enterprises are facing more complex competitive environment. For enterprises, how to identify the exchange rate risks and to avoid it, to maintain even expand the expected rate of return, has a strong practical significance.Accordingly, in this paper, research methods include theoretical and empirical analysis. We analyze exchange rate exposure, asymmetric and influencing factors of the foreign exchange rate exposure of the listed companies by selecting a specific industry using layer in-depth analysis. In the first part of this paper, we summarize the relevant literature, and analyze the definition, classification, measurement methods, asymmetric and influencing factors of our sample listed companies qualitatively on the basis of the previous literature. The second part is the empirical part of this paper. From the linear and nonlinear perspective, we test the exchange rate risk of China’s textile and garment industry, in order to help listed companies which are represented by the China’s textile and garment industry avoid exchange rate risk. According to the empirical part, we find that the stock returns of China’s textile and garment industry is significant exposed to the change of exchange rate. When considering the non-symmetry process of RMB appreciation and depreciation, the exchange rate risk exposure significantly increased. In addition, for the textile and garment industry, we think that the positive impact as the appreciation of the RMB is greater than the negative impact as the RMB devaluation. At the same time, we find that if a firm has bigger size, higher the foreign sales ratio, lower asset turnover, it will have lower exposure level. At the end of the paper, based on the previous analysis, we provide policy recommendations for china’s enterprises.

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