Luxshare Precision Industry Co.Ltd(002475)
Feasibility analysis report on foreign exchange derivatives trading
1、 Background of the company’s foreign exchange derivatives trading
Most products of the company and its subsidiaries need to be exported to overseas markets, while some raw and auxiliary materials and equipment need to be imported. At present, the change of RMB exchange rate policy and the fluctuation of international foreign exchange market will have a certain impact on the company’s operating performance. In order to further improve the company’s ability to deal with foreign exchange fluctuation risks, better avoid and prevent foreign exchange rate and interest rate fluctuation risks, and enhance the company’s financial stability, the company will carry out foreign exchange derivatives transactions, strengthen the company’s foreign exchange risk management, and effectively reduce the negative impact of foreign exchange market fluctuations on the company’s operation.
2、 Overview of foreign exchange derivatives transactions carried out by the company
The foreign exchange derivative transactions carried out by the company mainly include forward, swap, option and other products or a combination of the above products, and the corresponding underlying assets include exchange rate, interest rate, currency or a combination of the above assets. The purpose of the company’s foreign exchange derivatives transactions is to lock in costs, avoid and prevent risks such as exchange rate and interest rate.
The varieties of foreign exchange derivatives transactions carried out by the company are simple foreign exchange derivatives closely related to the basic business, and the foreign exchange derivatives and the basic business match each other in terms of variety, scale, direction and term, so as to follow the company’s prudent and prudent risk management principles.
3、 The necessity and feasibility of the company’s foreign exchange derivatives trading
Most products of the company and its subsidiaries need to be exported to overseas markets, while some raw and auxiliary materials and equipment need to be imported. Affected by international political and economic uncertainties, the foreign exchange market fluctuates frequently, and the uncertainty of the company’s operation increases. In order to lock in costs and prevent foreign exchange market risks, it is necessary for the company to appropriately carry out foreign exchange derivatives trading according to specific conditions.
The foreign exchange derivatives transactions carried out by the company are closely related to the company’s business. Based on the company’s foreign exchange assets, liabilities and foreign exchange revenue and expenditure business, it can further improve the company’s ability to deal with foreign exchange fluctuation risks, better avoid and prevent foreign exchange rate and interest rate market fluctuation risks, and enhance the company’s financial stability.
4、 Main terms for the company to carry out foreign exchange derivatives transactions
1. Contract term: matching with the transaction term of the company’s basic business, generally no more than one year.
2. Trading partner: financial institutions with foreign exchange derivatives trading qualification.
3. Liquidity arrangement: foreign exchange derivatives transactions are based on the company’s foreign exchange assets and liabilities, and the transaction amount and transaction period match the expected period of foreign exchange revenue and expenditure.
4. Other terms: foreign exchange derivatives trading mainly uses the company’s comprehensive bank credit line or margin trading, and adopts the method of principal delivery or differential delivery at maturity.
5、 Risk analysis of the company’s foreign exchange derivatives trading
The company follows the principle of locking exchange rate and interest rate risk in foreign exchange derivatives trading, and does not engage in speculative and arbitrage trading operations, but there are still certain risks in foreign exchange derivatives trading operations:
1. Market risk: the difference between the exchange rate and interest rate of foreign exchange derivatives trading contract and the actual exchange rate and interest rate on the maturity date will produce trading profits and losses; During the duration of foreign exchange derivatives, revaluation gains and losses will occur in each accounting period, and the cumulative value of revaluation gains and losses to the maturity date is equal to transaction gains and losses.
2. Liquidity risk: foreign exchange derivatives are based on the company’s foreign exchange assets and liabilities and match the actual foreign exchange revenue and expenditure to ensure that there is sufficient funds for settlement at the time of delivery, or choose net delivery derivatives to reduce the capital demand on the maturity date.
3. Performance risk: the objects of the company’s foreign exchange derivatives transactions are banks with good credit and have established long-term business relations with the company, and the performance risk is low.
4. Customer default risk: if the customer’s accounts receivable are overdue and the payment cannot be recovered within the predicted recovery period, it will cause delayed delivery and cause losses to the company.
5. Other risks: when conducting transactions, if the operators fail to conduct foreign exchange derivatives transactions according to the specified procedures or fail to fully understand the derivatives information, operational risks will be brought; If the terms of the transaction contract are not clear, it may face legal risks.
6、 Risk control measures taken by the company for foreign exchange derivatives transactions
1. The foreign exchange derivatives transactions carried out by the company are for the purpose of locking in costs, avoiding and preventing exchange rate and interest rate risks, and any risk speculation is prohibited.
2. The company has formulated a strict financial derivatives trading business management system, which clearly stipulates the operating principles, approval authority, internal operating procedures, information isolation measures, internal risk control procedures and information disclosure of financial derivatives trading to control transaction risks.
3. The company will carefully review the contract terms signed with the bank and strictly implement the risk management system to prevent legal risks.
4. The Finance Department of the company will continue to track the changes in the open market price or fair value of foreign exchange derivatives, timely evaluate the changes in the risk exposure of foreign exchange derivatives transactions, and regularly report to the management of the company. In case of any abnormality, it will report it in time, prompt the risk and implement emergency measures.
5. In order to prevent the delayed delivery of forward foreign exchange settlement, the company attaches great importance to the management of accounts receivable and formulates safety management measures to avoid the overdue phenomenon of accounts receivable.
6. The core Department of the company shall supervise and inspect the compliance of decision-making, management and execution of foreign exchange derivatives transactions.
7、 Feasibility analysis conclusion of foreign exchange derivatives transactions carried out by the company
The company’s foreign exchange derivatives trading is carried out around the company’s actual foreign exchange revenue and expenditure business, based on specific operation and investment business, for the purpose of avoiding and preventing the risk of foreign exchange rate and interest rate fluctuation, and for the needs of the company’s stable operation. The company has formulated the financial derivatives trading business management system and established a perfect internal control system. The targeted risk control measures planned to be taken are feasible.
By carrying out foreign exchange derivatives transactions, the company can avoid and guard against exchange rate and interest rate risks to a certain extent, and lock the transaction costs and benefits at the future time point according to the company’s specific operation and investment business needs; Balance the company’s foreign currency assets and liabilities.
Luxshare Precision Industry Co.Ltd(002475) board of directors
February 21, 2022
