Loctek Ergonomic Technology Corp(300729)
Feasibility analysis report on carrying out foreign exchange hedging business
1、 Background of the company’s foreign exchange hedging business
In order to effectively avoid the risk of foreign exchange market, prevent the adverse impact of large exchange rate fluctuations on the company, improve the use efficiency of foreign exchange funds, reasonably reduce financial expenses and reduce the risk of exchange rate fluctuations in future debt repayment, 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 foreign exchange hedging business to be carried out by the company is limited to the same currency as the main settlement currency used by the company. The main foreign currency currencies include but are not limited to US dollars, euros and Japanese yen.
The foreign exchange hedging business to be carried out by the company includes but is not limited to forward foreign exchange settlement and sales business, foreign exchange option business and other foreign exchange derivatives business. The company’s investment in foreign exchange hedging business comes from the company’s own funds and bank credit lines, and does not involve raised funds.
3、 The necessity and feasibility of the company’s foreign exchange hedging business
The company’s products need to be exported to overseas markets in large quantities. 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. Contract term: matched with the basic business term, generally no more than one year.
2. Qualified financial institutions and foreign exchange hedging counterparties.
3. Liquidity arrangement: the foreign exchange hedging business is based on normal foreign exchange assets and liabilities, and the business amount and business period match the expected foreign exchange revenue and expenditure period.
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 trend of foreign exchange rate 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. Credit risk: the counterparties of the company’s foreign exchange hedging business are financial institutions with good credit and have established long-term business transactions with the company, and there is basically no performance risk;
3. Internal operational risk: foreign exchange hedging business is highly professional, which may cause losses in the process of handling foreign exchange hedging business due to staff operation errors, system failures and other reasons.
6、 Risk control measures taken by the company for foreign exchange hedging business
1. Choose foreign exchange hedging business with simple structure, strong liquidity and low risk;
2. Foreign exchange hedging business takes hedging as the principle to avoid the risks caused by exchange rate fluctuations to the greatest extent. Authorized departments and personnel shall pay close attention to and analyze the market trend, and timely adjust the operation strategy in combination with the market situation to improve the hedging effect;
3. The company has formulated the derivatives trading management system, which clearly stipulates the operating principles, approval authority, internal operating procedures, information isolation measures, internal risk control procedures and information disclosure of foreign exchange hedging business transactions to control transaction risks.
4. The company will carefully review the contract terms signed with banks and other financial institutions and strictly implement the risk management system to prevent legal risks.
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 derivatives trading management system and improved the relevant internal control system. The targeted risk control measures taken by the company are feasible.
By carrying out foreign exchange hedging, the company can avoid the risk of foreign exchange market to a certain extent, prevent the adverse impact of large exchange rate fluctuations on the company, improve the use efficiency of foreign exchange funds and reasonably reduce financial expenses.
Loctek Ergonomic Technology Corp(300729) board of directors April 11, 2022
