Sichuan Kelun Pharmaceutical Co.Ltd(002422) : feasibility analysis report on foreign exchange hedging business

Sichuan Kelun Pharmaceutical Co.Ltd(002422)

Feasibility analysis report on carrying out foreign exchange hedging business

1、 Background of the company's foreign exchange hedging business

In recent years, the foreign currency settlement amount of export business is large. When the exchange rate fluctuates sharply, the exchange gain and loss will have a certain impact on the company's operating performance. In order to effectively prevent the risks brought by the foreign exchange market, improve the company's ability to deal with foreign exchange fluctuation risks, better avoid and prevent the exchange rate risks faced by the company, prevent the adverse impact of large exchange rate fluctuations on the company, improve the use efficiency of foreign exchange funds and enhance the company's financial stability, the company and its subsidiaries plan to carry out foreign exchange hedging business.

2、 Overview of foreign exchange hedging business to be carried out by the company

The types of foreign exchange hedging business transactions to be carried out by the company and its subsidiaries this time include but are not limited to the combination of forward foreign exchange settlement and sales, foreign exchange swaps, foreign exchange swaps, foreign exchange futures, foreign exchange options, interest rate swaps, interest rate options and other financial derivatives. The basic assets of foreign exchange hedging business include exchange rate, interest rate, currency, commodity and other objects; Either physical delivery or cash price difference settlement can be adopted; Either margin or guarantee can be used for leveraged transactions, or unsecured and unsecured credit transactions can be used.

3、 The necessity and feasibility of the company's foreign exchange hedging business

We need to import some products, technologies and services from overseas markets. Affected by international political and economic uncertainties, the foreign exchange market fluctuates more frequently, and the uncertainty of the company's operation increases. In order to prevent foreign exchange market risks, it is necessary for the company to appropriately carry out foreign exchange hedging business according to specific conditions.

The foreign exchange hedging business carried out by the company is 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 the risk of foreign exchange fluctuation, better avoid and prevent the risk of foreign exchange rate and interest rate fluctuation faced by the company, and enhance the company's financial stability.

4、 Basic information of the company's foreign exchange hedging business

1. Business scale

According to the business scale and actual demand of the company, the company and its subsidiaries carry out foreign exchange hedging business with a total amount of no more than 2 billion yuan or equivalent foreign currency within the authorization period. Within the above limit, the funds can be used in a rolling manner within 12 months.

2. Main business types

The foreign exchange hedging transactions carried out by the company refer to the foreign exchange hedging business conducted in financial institutions to avoid and prevent exchange rate or interest rate risks in order to meet the needs of the company's normal production and operation, including but not limited to forward foreign exchange settlement and sales, foreign exchange swaps, foreign exchange swaps, foreign exchange futures, foreign exchange options, interest rate swaps, interest rate options and other financial derivatives.

3. Term of foreign exchange hedging business

The term of authorization for foreign exchange hedging business shall be valid within one year from the date of deliberation and approval by the board of directors of the company.

4. Source of funds

The funds of the company and its subsidiaries for foreign exchange hedging business are their own funds.

5. Implementation mode

The board of directors of the company authorizes the general manager of the company to examine and approve the daily foreign exchange hedging business plan and contracts related to foreign exchange hedging business, and agrees that the general manager shall, within the scope of the above authorization, delegate the relevant person in charge of finance of the company, the general manager and relevant person in charge of finance of subsidiaries to exercise the decision-making power of this business, sign agreements related to foreign exchange hedging business and other relevant matters.

6. Counterparty of foreign exchange hedging business

Banks and other financial institutions with legal business qualifications conduct transactions.

5、 Risk analysis of the company's foreign exchange hedging business

In carrying out foreign exchange hedging business, the company follows the principle of locking exchange rate and interest rate risk, and does not engage in speculative and arbitrage trading operations, but there are still certain risks in the trading operations of foreign exchange hedging business.

1. Exchange rate fluctuation risk: in case of significant deviation between the exchange rate trend and the direction of exchange rate fluctuation judged by the company, the cost incurred by the company after locking the exchange rate may exceed the cost incurred when it is not locked, resulting in losses to the company.

2. Internal control risk: foreign exchange hedging business is highly professional and complex, which may lead to

Business risks caused by imperfect internal control mechanism.

3. Performance risk: foreign exchange hedging business has the risk of default caused by failure to perform the contract upon expiration.

4. Legal risk: due to the change of relevant laws and regulations or the counterparty's violation of relevant laws and regulations, the contract may not be executed normally and bring losses to the company.

6、 Risk control measures taken by the company for foreign exchange hedging business

1. The company has formulated the management system of foreign exchange hedging business, which has made clear provisions on the operation regulations, approval authority, internal operation process, information confidentiality and isolation measures, internal risk reporting system and risk handling procedures, information disclosure, etc. of the company's foreign exchange hedging business. The system meets the relevant requirements of regulatory authorities, meets the needs of actual operation, and the developed risk control measures are practical and effective.

2. In order to avoid the loss caused by the sharp fluctuation of exchange rate, the company will strengthen the research and analysis of exchange rate, pay real-time attention to the changes of international market environment, adjust strategies in time and avoid exchange loss to the greatest extent.

3. The company's foreign exchange transactions take hedging as a means to avoid and prevent exchange rate risks, and do not conduct foreign exchange transactions solely for the purpose of profit.

4. The Audit Department of the company will supervise and inspect the compliance of decision-making, management and implementation of foreign exchange hedging business, and review the use of funds and profit and loss.

5. In order to control the risk of transaction default, the company only carries out foreign exchange hedging business with legally qualified large banks and other financial institutions.

7、 Conclusion of feasibility analysis of foreign exchange hedging business carried out by the company

The purpose of the company's foreign exchange hedging business is to make full use of foreign exchange hedging tools to reduce or avoid exchange rate risks caused by exchange rate fluctuations, reduce exchange losses and control business risks, which is necessary. The company has formulated the management system of foreign exchange hedging business and improved the relevant internal control system. The targeted risk control measures taken by the company are feasible.

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