Feasibility analysis report on financial derivatives trading
Jiangsu Nanfang Bearing Co.Ltd(002553)
Feasibility analysis report on carrying out financial derivatives trading I. background and purpose of carrying out financial derivatives trading business
The company's overseas sales revenue is growing day by day, and the foreign exchange collection is mainly settled in foreign currencies such as US dollars and euros. When the exchange rate of the receiving currency fluctuates greatly, or there is a great difference between the actual exchange rate and the exchange rate of the recording currency, the exchange gains and losses will have a great impact on the operating performance of the company. In order to reduce the impact of exchange rate fluctuations on profits and effectively avoid and prevent foreign exchange market risks, the company plans to carry out financial derivatives trading business with relevant banks and other financial institutions.
The main purpose of the company's financial derivatives trading business is to make full use of foreign exchange instruments to reduce the impact of exchange rate fluctuations on the company, so that the company can focus on production and operation and maintain a stable profit level in case of large exchange rate fluctuations. The company does not engage in speculative and arbitrage trading operations. 2、 Overview of financial derivatives trading business carried out
The financial derivatives business to be carried out by the company includes but is not limited to the following scope: forward settlement and sales of foreign exchange in US dollars or other currencies, foreign exchange swap business, currency swap business, interest rate swap business and foreign exchange option business, or a combination of the above products. The underlying assets of financial derivatives include exchange rate, interest rate, currency or a combination of the above assets; Either due delivery or balance settlement can be adopted.
The investment targets are simple financial derivatives closely related to the company's main business, and the derivatives match the basic business in terms of variety, scale, direction and term, which is in line with the company's prudent and prudent risk management principles. 3、 Necessity and feasibility of carrying out financial derivatives trading business
With the growth of the company's international business, the exchange rate exposure risk faced by the company also increases. In order to better avoid and prevent the risks of foreign exchange rate, interest rate and commodity price fluctuations faced by the company, and enhance the company's financial stability, the company plans to use its own funds for derivatives investment. In order to prevent the above fluctuations from adversely affecting the company's profits and shareholders' equity, it is necessary for the company to appropriately carry out financial derivatives transactions according to specific conditions, so as to strengthen the company's risk management.
Feasibility analysis report on financial derivatives trading
4、 Risk analysis of financial derivatives trading business
The company follows the principle of locking exchange rate and interest rate risk in carrying out financial derivatives transactions, and maintains the concept of risk neutrality; Speculative trading operations are not conducted, but there are still certain risks in financial derivatives trading:
1. Market risk: the financial derivatives trading business carried out by the company is mainly the hedging business related to the main business. There is a risk of loss caused by the price change of financial derivatives due to the difference between the underlying exchange rate and interest rate and the actual market exchange rate and interest rate on the maturity date; During the duration of financial derivatives, in the case of large exchange rate fluctuations, the derivative financial products operated by the company may bring large profits and losses from changes in fair value.
2. Liquidity risk. The risk that the transaction cannot be completed due to insufficient market liquidity.
3. Operational risk: financial derivatives trading business is highly professional and complex, which may bring operational risk caused by human error, system failure and control failure of trading or management personnel.
4. Performance risk. In carrying out financial derivatives business, there is a risk of default caused by failure to perform the contract upon expiration.
5. Legal risk: due to the change of relevant laws or the violation of relevant legal systems by counterparties, the contract may not be executed normally and bring losses to the company.
5、 Risk control measures for financial derivatives trading business
1. Clarify the trading principles: the financial derivatives trading carried out by the company aims to lock in costs, hedge, avoid and prevent exchange rate and interest rate risks, and prohibit any risk speculation; The trading quota of the company's financial derivatives shall not exceed the authorized quota deliberated and approved by the board of directors or the general meeting of shareholders.
2. Counterparty Management: strictly screen counterparties, conduct derivatives transactions only with banks and other financial institutions with sound operation, good credit standing and qualification for financial derivatives trading business, and invite external professional investment and legal affairs services institutions to provide consulting services for the company's financial derivatives trading and scientific and rigorous investment strategies and suggestions for the company when necessary.
3. Product selection: the company only deals in financial derivatives related to exchange rate and interest rate, and considers that the traded commodities need to be general and universal in the market, so as to ensure the smooth completion of delivery when each transaction expires.
4. System improvement: strictly implement the approval procedures in accordance with the requirements of the company's venture capital management system,
Feasibility analysis report on financial derivatives trading
Timely fulfill the obligation of information disclosure and internal risk reporting system to control transaction risks.
5. Supervision and inspection: independent directors and the board of supervisors have the right to supervise and inspect the derivative financial products purchased by the company, and can hire professional institutions to audit when necessary.
6. Regular disclosure: complete the information disclosure in strict accordance with the relevant regulations and requirements of Shenzhen Stock Exchange
6、 Accounting policies and accounting principles
In accordance with the relevant provisions and guidelines of accounting standards for Business Enterprises No. 22 - recognition and measurement of financial instruments, accounting standards for Business Enterprises No. 24 - hedging and accounting standards for Business Enterprises No. 37 - presentation of financial instruments, the company conducts corresponding accounting treatment for the financial derivatives trading business to be carried out, reflecting the relevant items of the balance sheet and income statement.
7、 Conclusion of feasibility analysis of financial derivatives transactions carried out
The company's financial derivatives trading is carried out around the company's actual business. Relying on the normal business background and taking avoiding exchange rate risk as the main purpose, the company prohibits speculation and arbitrage trading. It is out of the urgent needs of the company's stable operation and is in line with the company's overall interests and long-term development. It can effectively avoid foreign exchange market risks and prevent the adverse impact of large exchange rate fluctuations on the company.
During the operation of financial derivatives trading business, the company will arrange and use professionals in strict accordance with the provisions of laws and regulations, establish strict authorization and approval processes, strengthen internal management, establish a timely reporting system of abnormal conditions, and form efficient risk handling procedures. Ensure that the business operation meets the relevant requirements of the regulatory authorities, meets the needs of actual operation, and the risk control measures are practical and effective.
The financial derivatives trading business to be carried out by the company is closely related to the company's main business, which can further improve the use efficiency of foreign exchange funds, reasonably reduce financial expenses, reduce the impact of exchange rate fluctuations on the company, and help to strengthen the company's foreign exchange risk control ability. Therefore, the financial derivatives trading business carried out by the company is necessary and feasible.
Jiangsu Nanfang Bearing Co.Ltd(002553) board of directors
April 11, 2002
