Zhejiang Narada Power Source Co.Ltd(300068)
Feasibility analysis report on carrying out foreign exchange hedging business
1、 Purpose of foreign exchange hedging business
According to the company’s international development strategy, the company’s international trade business volume is increasing. In order to effectively avoid and prevent foreign exchange market risks and prevent the adverse impact of large exchange rate fluctuations on the company’s production and operation, the company plans to carry out foreign exchange hedging business with banks.
2、 Basic information of hedging
(I) trading varieties
The foreign exchange hedging business to be carried out by the company is limited to the same currency as the main settlement currency used in the company’s production and operation business. The main foreign currency currencies include US dollar, euro and other currencies related to the actual business. The main types of foreign exchange hedging business include general forward foreign exchange settlement and sales, foreign exchange swap, foreign exchange option business, interest rate swap and other businesses.
(II) proposed investment amount and business period
According to the company’s asset scale and business demand, the total amount of foreign exchange hedging business carried out by the company and its subsidiaries shall not exceed the equivalent of RMB 1 billion. This item shall be valid within 12 months from the date of deliberation and approval by the board of directors of the company. The company and its subsidiaries do not need to invest other funds except to pay a certain proportion of the deposit according to the agreement signed with the bank. The deposit will use the company’s own funds and does not involve the raised funds. The proportion of deposit paid shall be determined according to the specific agreements signed with different banks.
(III) authorization and term
In view of the close relationship between foreign exchange hedging business and the company’s operation, the board of directors of the company authorizes the general manager of the company to approve the daily foreign exchange hedging business plan and sign contracts related to foreign exchange hedging business. The authorization period shall be valid within 12 months from the date of deliberation and approval by the board of directors of the company.
(IV) accounting principles for foreign exchange hedging business
According to the accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments, accounting standards for Business Enterprises No. 24 – hedging, accounting standards for Business Enterprises No. 37 – presentation of financial instruments and other relevant provisions and guidelines, the company conducts corresponding accounting and disclosure of foreign exchange hedging business.
4、 Risk analysis of foreign exchange hedging business
Carrying out foreign exchange hedging business can effectively reduce the impact of exchange rate fluctuations on the company’s operation, but there may also be the following risks:
1. Exchange rate fluctuation risk: when the exchange rate changes greatly, the bank’s forward exchange rate quotation for settlement and sale of foreign exchange may deviate from the exchange rate at the time of actual receipt and payment of the company, resulting in exchange losses.
2. Internal control risk: foreign exchange hedging business is highly professional and complex, which may cause risks due to imperfect internal control system.
3. Default risk of customers and suppliers: due to the overdue payment of customers or payments to suppliers, the payment for goods cannot be recovered within the predicted collection period, which will cause losses due to the delayed delivery of forward foreign exchange settlement.
4. Collection and payment forecast risk: the company forecasts collection and payment according to sales orders and purchase orders. In the actual implementation process, customers or suppliers may adjust orders, resulting in inaccurate collection and payment forecasts and delivery risk.
5、 Risk control measures taken by the company
1. In carrying out foreign exchange hedging business, the company and its subsidiaries will follow the principle of hedging for the purpose of locking exchange rate risk, do not carry out speculation and arbitrage transactions, and conduct transactions in strict accordance with the predicted amount of foreign exchange revenue and expenditure (including international investment and financing) of the company’s import and export business when signing contracts.
2. The company has formulated the management system of foreign exchange hedging business, which clearly stipulates the operation principles, approval authority, internal operation process, information isolation measures, internal risk reporting system, risk handling procedures and information disclosure of foreign exchange hedging business.
3. In order to avoid the risk of 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, timely adjust business strategy and avoid exchange loss to the greatest extent.
4. In order to prevent delayed delivery of foreign exchange hedging, the company will strictly control the total amount of foreign exchange funds and the time of foreign exchange settlement and sales in accordance with the customer’s payment collection plan. In principle, the locking amount and time of foreign exchange hedging business shall match the amount and time of foreign currency payment withdrawal. At the same time, the company will attach great importance to the management of foreign currency accounts receivable to avoid the overdue phenomenon of accounts receivable.
5. The internal control department of the company will regularly review the actual operation, capital use and profit and loss of foreign exchange hedging business.
6、 Conclusion of feasibility analysis on foreign exchange hedging business
The company’s foreign exchange hedging business is carried out around the company’s actual foreign currency settlement business, for the purpose of avoiding and preventing the risk of exchange rate and interest rate fluctuations, and for the needs of the company’s stable operation.
In conclusion, it is feasible and necessary for the company to carry out foreign exchange hedging business.
Zhejiang Narada Power Source Co.Ltd(300068) board of directors
January 26, 2022
