Abstract

From a broad perspective, wealth management has been a crucial economical aspect in modern society for a long time; whereas, foreign exchangeC FX) wealth management in China is still in its infancy. To promote the healthy development of FX wealth management, it is essential to develop an objective, comprehensive, and accurate understanding of the axioms and theories of FX wealth management. This requires a multi-fold effort: one "must not only comprehend the orientation, impact and future development of FX wealth management from the macro environment perspective, but also study the technical details in the micro sense; one must not only analyze the theoretical foundatíon and operatíng laws of FX wealth management, but also probe ínto the practícal application of general theory and internatíonal experience in China wíth its specific clrcumstances.

FX wealth management is a kind of business management activity to optimize FX resource allocations using all kinds of available financial instruments or fund management schemes under certain restrictions for the realization of the set financial objectives of institutions or individuals. Such activity is structural, diversified, and specialized. With the impact of the accrual of Chinese social wealth, the rise of FX assets, the increase of economic openness, the deepening of economic marketization, the change of social structure, the vo1atility of asset prices, and the fierce competition of finance industry, to develop FX wealth management becomes a necessity in our society. In addition, the deregulation of finance and technology development and the progress of finance theory further provide FX wealth management with development opportunities and advantageous conditions.

FX wealth management is based on the theories of investment analysis, financial engineering, financial management, risk control as well as other theories. The basic economic relations underlying in those theories present the analytical framework and logical foundation of FX wealth management. Every wealth management product or solution scheme can be described with cash flow; therefore , to assess a wealth management product or solution needs certain appraisal ratio. The earnings and the risk of wealth management can be measured with re1ated tools. Wealth management risk can be managed by asset-liability management, hedging, insurance, diversification, credit enhancement etc. Wealth management is also involved with the application of specu1ation and arbitrage mechanisms. Capital cost is primarily used in corporate wealth management and investment decisions to establish an optimal corporate capital structure.

Diversified financial instruments are necessary tools to operate FX wealth management. Financial instruments are sorted into different groups according to different criteria. Foundational financial instruments mostly include debt instruments, equity instruments, and FX instruments. Derivatives mostly include forwards , futures ,options, swaps, and exchange transactions under bail etc. They play an important role in their respective places, and while they share common ground in some ways, they differentiate with each other in other ways. Single financial instruments are instruments whose earning is determined by single market factor. Compound financial instruments are the combination of two or more single financial instruments. Each financial instrument can be regarded as a set of cash flow, while a compound financial instrument is created by disassembling or assembling certain financial instruments to simulate the cash flow of a particular financial instrument. The design and innovation of FX wealth management products are to either directly arrange them for use or to disassemble them into single independent elements. These elements are reorganized over again according the wealth management demand so as to produce practicable and marketable wealth management product and scheme by encircling of wealth management object, grasping market trends, knowing conditional constraints and selecting proper financial instruments.

Only when wealth management theory is combined with particular environment, is it possible to know the accuracy of its application and its actual feasibility, which is the forming foundation of Chinese characteristics of FX wealth management. The FX wealth management environment is the aggregate of all kinds of exterior factors that impact and constrain FX wealth management business. The factors most closely linked to FX wealth management include the economic operation environment, the financial market environment, the FX administration environment, the regulations and rules environment and the social culture environment. The economic operation environment mostly refers to the macro/micro economic situation for enterprises and individuals that operate FX wealth management business. Financial markets are the platform of FX wealth management, which includes fund transfer, risk allocation, price discovery, liquidity accommodation and economizing transaction costs. FX regulation not only influences the free flow of cross boarder capital and the allocation scope of funds and resident's free investment/financing business in international financial market, but also influences people's choices of financial products, the exchange price between local and foreign currency, and corresponding risk. In short, the degree of FX regulation determines the need and amount of FX wealth management by institutions and individuals. Enterprises and individuals should abide by all kinds of laws, regulations, rules and policies when they operate a FX wealth management business. In addition, FX wealth management is influenced by the social and culture environment that is make up of value system, belief, attitude, thought, notion, custom and behavioral pattern.

Corporate FX wealth management mostly includes long term FX investment, long term FX financing management and FX working capital management. Here is a brief introduction of each category:

The first category is long term FX investment. Long term investment decisions are made to find the optimal equilibrium of investment earning and risk. Long term investment can be broken down into direct investment and indirect investment. Foreign investors need to pass through five phrases, which include preparation, approval , registration with AIC, registration with SAFE and usual operation, in order to establish a foreign invested enterprise by direct investment within the borders. The emphasis of FX management of foreign direct investment is to mange the inflow, intermediate flow and outflow of FX capital. The management framework of active FX management of overseas direct investment is looking at the domestic investment body as regulation object, looking at the outflow/inflow of FX fund and the inspection of exchange as management emphasis, looking at the examination of the FX fund resource as starting point and core, looking at the FX registration of overseas direct investment, examining the purchases and remittances of FX fund and the retribution of profit of overseas direct investment, having a united annul check of overseas investment and etc. Presently, investment in domestic/foreign securities or overseas capital operation is regulated and it needs to channel by QFU, QDU, D/R, foreign industry investment fund, MNC FX fund internal working and other particular channels. FX management of indirect investment mostly includes regulation of exchange business relating to investment in domestic securities markets by foreign investors and investment in overseas securities market by domestic investors, regulation of foreign involved industry investment funds and of MNC internal overseas capital operation and etc. 

The second category is long term FX financing management.  Long term financing management is to raise enough respective funds in time according to the term and amount of fund demand, to optimize the corporate capital structure, to minimize the cost and to maximize the enterprise value with the financial risk under control. Long term FX financing management mostly includes foreign debt, FX loans, foreign guarantees, overseas IPO and etc. The basic re quirements of Chinese foreign debt management are the combination of plan management and autonomous financing , the combination of examinations, approval and sanction, and the combination of registration management and statistics inspection. Most of the content of foreign debt management consists of foreign debt borrowing, foreign debt registration, foreign debt account opening and use, the settling of foreign debt, foreign debt repayment and etc. Foreign guarantee management is to look upon guarantee qualification management, guarantee registration, approval of performance and writing off as management emphasis. A FX loan íssued by a domestic bank to domestic non-financial institution is called domestic foreign loan. The corresponding FX management of the load includes loan registration matiagement, special account management, settling FX management, purpose management and repartnent management. At the same time, domestic institutions can adopt foreign currency debt restructuring, FX loans pledged by close -end RMB savings, favorable FX credit loans and such measures to promote the utilizing efficiency. Chinese management of listing overseas includes foreign shares of overseas listed company and overseas listed company controlled by Chinese institution or individual.

The third category is FX working capital management. A company's working capital can be used for both short term investment and short term financing. The major FX capital management in China includes the management and operation of international settlement, trade financing, trade credit, and FX cash. As for international settlement, regu1ations exist for the governance of import partment verification, export col1ection verification, non-trade FX control, and FX settlement account management. Traditionally, the major method of trade financing is short term financing ，which is procedurally less difficult. However，in the recent years, newer structural trade financing methods that combine credit, insurance, guarantee, and settlement have burgeoned. Trade credit exists when one firm provides goods or services to a customer with an agreement of deferral partent or advance partent. It is a form of direct financing that is performed under market rules without signing a formal contract. The major difference between trade financing and trade credit is that the former combines international settlement and bank credit, and the latter involves only commercial credit. As a result of their characteristic differences, different regulations are used to govern each category. Usually, companies possess FX cash for a variety of purposes including transactional, preventive, speculative, and compensatory purposes. In actuality, the goal of foreign currency cash management is to find the equilibrium between cash liquidity and profitability. With the rapid growth of multinational companies in China, many have hoped to develop businesses on the foreign currency cash pool, which Chinese government has already made trials.

Individual FX wealth management is no less important than the corporation FX wealth management. Mallows' need- hierarchy theory, the consumption-expenditure theory, and the life cycle theory each provide an important educational guidance to individual wealth management. The content of individual wealth management includes financial investment plans, housing plans, individual risk management and insurance plans, educational investment plans, individual taxation plans, retirement plans, and heritage plans. The major procedures of individual wealth management includes setting a clear goal, analyzing one's personal wealth management condition, framing a wealth management plan, selecting relevant wealth management products, and getting feedback and adjusting the wealth management plan. Under the current regulation governing FX, the products and strategies of individual FX wealth management can be categorized into the following segments:

( 1) Paying and receiving of foreign currencies 一including in dividual currency exchange and the use of foreign currency credit cards, FX cash, and foreign currency traveler's check. (2) Individual FX investment - including direct investments, overseas investment of Chinese real estate, individual investment in B-shares, domestic individual participating in oversea listing company employeeshare and option scheme, FX saving deposit, purchasing and selling foreign currencies, purchasing domestic FX trust, purchasing domestic FX insurance, and transferring individual asset out of China. (3) Individual FX financing management 一including RMB loans guaranteed with foreign currencies, non-resident personal residential mortgage FX loan, loan for study abroad; and overdraft of a personal international credit card. In comparison to the options open to individual FX investment, the options open for individual FX financing management are relatively small. (4) After marketization of savings interest rate and forming mechanism reform of RMB exchange rate in China, many financial institutes introduce a variety of FX structured products and strategies, including FX structured deposit products and oversea wealth management servies ， which are two of the most highly sophisticated and popular wealth management products in China.

Companies and individuals alike face certain risks when participating in FX wealth management activities. On the basis of the principle of diversifying management and maximizing profit, investors should, according to risk objectivity, bear reasonable risk and perform risk management functions , deal with elements such as risk identification, risk weighing, risk avoidance, sensitivityanalysis, stress testing, risk disposition, risk-based supervision and adjustment, and properly use currency match, duration match, hedging, insurance, avoiding precaution, reservation, diversification, transfer pricing and other risk management methods. Exchange rate risk management can be categorizing into the transaction risk management, economic risk management, accounting risk management, and sovereignty risk management. Interest rate risk can be categorizing into repricing risk, yield curve risk, basis risk, and option risk. It can also be controlled by using risk transfer methods. FX insurance is a type of commercial insurance that allows the premium and compensation to be paid in foreign currencies under contractual terms. The FX management emphasis of insurance is to supervise the paying and receiving activities of insurance and the nature of the cash flow. Overall, an enterprise should adopt different risk management strategies based on its business characteristic,  proportion of international business, size, scope, and duration of investment and financing. In addition, an enterprise should reassessits risks and adopt different risk management strategies during each stagz of its growth to minimize any potential risk.

<key words> FX wealth management, investment, financing , risk management, corporation, individual