Feasibility analysis report on increasing the amount of foreign exchange derivatives trading business
1、 Background of the company's increase in foreign exchange derivatives trading business line
The company held the fourth meeting of the second board of directors on November 27, 2020, deliberated and passed the proposal on carrying out foreign exchange derivatives trading business, and agreed that the company and its subsidiaries carry out foreign exchange derivatives trading business with a transaction amount of no more than US $40 million (or equivalent foreign currency); The 9th meeting of the second board of directors was held on August 26, 2021. The proposal on increasing the amount of foreign exchange derivatives trading business was considered and approved, and the company and its subsidiaries were agreed to increase the amount of derivatives trading business to no more than US $80 million (or equivalent foreign currency). With the continuous development of the company's overseas business, the original amount of foreign exchange derivatives trading business can no longer meet the needs of the existing business. In order to effectively avoid foreign exchange market risks and prevent the adverse impact of large exchange rate fluctuations on the company's operation, the company and its subsidiaries plan to, Increase the business line of foreign exchange derivatives trading to no more than US $150 million (or equivalent foreign currency).
2、 Basic information of the company's increase in the amount of foreign exchange derivatives trading business
1. Types of foreign exchange derivatives transactions: including but not limited to forward settlement and sales of foreign exchange, currency swaps, foreign exchange options and other products or product combinations, and the corresponding underlying assets include exchange rate, interest rate, currency, etc. or the above asset combinations.
2. Increase the amount and duration of foreign exchange derivatives trading business: on the premise of not affecting normal production and operation, the company and its subsidiaries will increase the total amount of derivatives trading business to no more than US $150 million (or equivalent foreign currency). The above amount can be recycled and rolled within the approval period, However, the cumulative balance at any point in the period shall not exceed US $150 million (or equivalent foreign currency). The implementation period shall be valid within 12 months from the date of deliberation and approval by the board of directors. If the duration of a single transaction exceeds the validity of the resolution, the validity of the resolution shall be automatically extended to the termination of the single transaction.
3. Source of funds: self owned funds
4. Foreign exchange derivatives counterparties: financial institutions approved by the State Administration of foreign exchange and the people's Bank of China and qualified for foreign exchange derivatives business.
5. Authorization: authorize the company's management to implement relevant matters.
6. Others: foreign exchange derivatives trading shall pay a certain proportion of initial margin and supplementary margin according to the requirements of financial institutions. The way is to occupy the comprehensive credit line of the bank or pay directly. At maturity, the way of principal delivery, differential delivery or reverse position closing extension is adopted.
3、 Necessity and feasibility for the company to increase the trading quota of foreign exchange derivatives
With the growth of the company's overseas business, the exchange rate exposure risk faced by the company also increases. In order to effectively avoid the adverse impact of exchange rate fluctuations on the company's operation and control foreign exchange exposure, it is necessary for the company to appropriately increase the amount of foreign exchange derivatives trading business according to specific conditions.
The company's increase in the amount of foreign exchange derivatives trading business is closely related to the company's daily business needs. Based on the company's foreign exchange assets, liabilities and foreign exchange revenue and expenditure business, it can avoid and prevent the fluctuation risk of exchange rate to a certain extent, improve the use efficiency of foreign exchange funds, reasonably reduce financial expenses, and realize the preservation and appreciation of value for the purpose of avoiding risks.
4、 Risk analysis of the company's foreign exchange derivatives trading business
The company and its subsidiaries carry out foreign exchange derivatives trading in accordance with the principle of locking exchange rate and interest rate risk, and do not carry out 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 profits and losses will occur in each accounting period, and the cumulative value of revaluation profits and losses to the maturity date is equal to transaction profits and losses;
2. Liquidity risk: foreign exchange derivatives are based on the foreign exchange assets and liabilities of the company and its subsidiaries and match with the actual foreign exchange revenue and expenditure to ensure that there are sufficient funds for settlement at the time of delivery, or choose net delivery of derivatives to reduce the capital demand on the maturity date;
3. Performance risk: the company and its subsidiaries carry out foreign exchange derivatives transactions with banks with good credit and have established business relations with the company, so the performance risk is low;
4. Customer default risk: the customer's accounts receivable are overdue, and the payment cannot be recovered within the predicted recovery period, which will lead to delayed delivery and losses to the company;
5. Operational risk: when trading, if the operators fail to conduct foreign exchange derivatives trading according to the specified procedures or fail to fully understand the derivatives information, it will bring operational risk;
6. Legal risk: during the transaction, if the terms of the transaction contract are not clear, it may face legal risk, or the company may suffer losses due to the failure of normal execution of the contract due to changes in relevant laws or the counterparty's violation of relevant legal systems.
5、 Risk control measures taken by the company for foreign exchange derivatives trading business
The company strictly controls the risks when carrying out the foreign exchange derivatives trading business. The specific risk control measures are as follows: 1. The company has formulated the Hitevision Co.Ltd(002955) foreign exchange derivatives trading business internal control system, which describes the operation principles, approval authorities, management and internal operation processes, information isolation measures, internal risk reporting system and risk handling procedures of the foreign exchange derivatives trading business Make clear provisions on information disclosure and file management to control transaction risks.
2. The trading of foreign exchange derivatives follows the principles of legality, prudence, safety and effectiveness, and does not conduct foreign exchange transactions solely for the purpose of profit. All foreign exchange derivatives trading businesses are based on normal production and operation, based on the real trading background, and for the purpose of avoiding and preventing exchange rate or interest rate 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. After the review and approval of the board of directors, the management of the company will sign relevant contract documents within the above investment limit, which will be organized and implemented by the financial department of the company, continuously 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, regularly report to the management of the company, and timely report any abnormalities, Prompt risks and implement emergency measures.
5. The Audit Department of the company shall supervise and inspect the compliance of decision-making, management and execution of foreign exchange derivatives transactions.
6、 Conclusion of feasibility analysis on the company's increase of foreign exchange derivatives trading line
The company's increase in the amount of foreign exchange derivatives trading business is based on its main business and aims to lock in costs, avoid and prevent risks such as exchange rate and interest rate. At the same time, the company has formulated the internal control system of Hitevision Co.Ltd(002955) foreign exchange derivatives trading business, established a perfect internal control system, and the targeted risk control measures taken are also feasible. Therefore, the company's increase in the amount of foreign exchange derivatives trading business will help the company achieve stable operation.
Hitevision Co.Ltd(002955) board of directors March 1, 2022
