Abstract: The paper redefined the exchange rate risk of foreign exchange reserve as: volatility of respective exchange rates of various currencies in the reserve, and the correlation of currency exchange rate fluctuations, the uncertainty of gains and losses of reserve asset brought by the combination of the previous two. We innovatively proposed MFA—VaR（Modified Factor Analysis Value at Risk）model. The measurement results of this model is that at the 95% confidence level, the exchange rate risk theoretical loss interval of China's foreign exchange reserves is 5.8 to 35.4 billion dollars.
Keywords: Foreign Exchange Reserve, Exchange Rate Risk, MFA—VaR
source:Finance & Trade Economics ,No8,2013