The latest data from the State Administration of Foreign Exchange shows that in May, my country’s international trade in goods and services surplus based on the balance of payments was US$26.5 billion. Among them, the trade surplus in goods was US$36.6 billion; the trade deficit in services was US$10.2 billion. Overall remains stable. At present, in addition to the tight capacity in the international shipping market, exchange rate fluctuations and rising raw material prices have also put considerable pressure on foreign trade companies. In this regard, Ministry of Commerce spokesperson Gao Feng said on the 24th that the Ministry of Commerce and other departments are optimizing the exchange rate. Hedging products and services provide targeted guidance for foreign trade companies to avoid risks.
June to August each year is a period of seasonal foreign exchange purchases. Dividends, dividends and profit remittances of foreign-invested enterprises and overseas listed companies will be concentrated, causing these enterprises to The demand for foreign exchange purchases is heating up.
“Since this week, the RMB exchange rate has fallen a bit fast.” A financial director of a foreign trade company producing home appliances in Jiangsu and Zhejiang lamented to reporters. As of 20:00 on June 24, the RMB exchange rate against the U.S. dollar in the onshore market was hovering around 6.4672, after falling for seven consecutive trading days and falling more than 1,100 basis points from the year’s new high of 6.3573 set at the end of May. She said frankly that with the rapid decline in the exchange rate, the cost of purchasing foreign exchange continues to rise, and the price of imported raw materials has increased. The current product cost rate of the company has increased by more than 7 percentage points from the beginning of the year, almost swallowing up most of the export profits of the products.
This has also attracted great attention from relevant national departments.
From April to May this year, the RMB exchange rate rose rapidly, especially in May, frequently setting highs in three years. The appreciation of the RMB has also had an impact on my country’s foreign trade companies. The appreciation of the RMB is good for importing companies and will reduce the procurement costs of importing companies. Especially when the prices of some commodities continue to rise sharply and the import costs of raw materials for companies increase, the appreciation of the RMB will reduce the pressure caused by rising commodity prices. For export companies, RMB appreciation is not conducive to exports because the cost of export products increases, which in turn affects the international market competitiveness of export companies’ products. At the same time, there will also be exchange rate risks, leading to exchange losses. Recently, the RMB exchange rate is expected to shift toward depreciation. In the trading days from May 31 to June 18, there were only three trading days in the direction of appreciation.
Ministry of Commerce Spokesperson Gao Feng: In recent surveys, we have found that exchange rate fluctuations are compounded by problems such as rising raw materials and poor logistics, which have affected the production and operations of some foreign trade companies. The Ministry of Commerce, together with the People’s Bank of China and the Administration of Foreign Exchange, promotes financial institutions to continue to optimize exchange rate hedging products and services, and actively promotes the “Exchange Rate Hedging Business Manual for Foreign Economic and Trade Enterprises” to provide targeted guidance for enterprise hedging.
A director of the corporate business department of a joint-stock bank told reporters that they are currently actively offering RMB and foreign exchange currency swap products linked to LPR loan interest rates to foreign trade companies to assist foreign trade companies in applying for foreign exchange. During trade financing, you can lock exchange rates through swap transactions to avoid the risk of exchange rate fluctuations in advance.
In his view, those currently experiencing unforeseen losses from foreign exchange purchases due to the falling exchange rate are mainly some foreign trade companies that had previously bet on the rapid appreciation of the renminbi and delayed their purchases of foreign exchange. This shows that the risk of betting on the unilateral rise or fall of the exchange rate is quite huge.
“Fortunately, after experiencing the sharp rise and fall of the RMB exchange rate in the past two months, many foreign trade companies have realized the importance of establishing the principle of risk neutrality and enhancing foreign exchange hedging. importance, the speculative operation of unilateral bets on the decline of the exchange rate has been significantly reduced.” said the head of the corporate business department of the joint-stock bank.
Some companies “count on” high returns from delayed foreign exchange settlement
Many financial directors of foreign trade companies reported to The reporter said that after experiencing the sharp rise and fall of the RMB exchange rate many times before, they now have considerable experience in risk aversion in the face of rapid fluctuations in the exchange rate.
“As early as mid-May, we had purchased foreign exchange risk reversal combination options – to prepare for risks in response to the rise and fall of the RMB exchange rate. Now the fluctuation range of the RMB exchange rate is within the foreign exchange risk The exercise price of the reversal combination option is within the exercise price, so we do not need to pay any fees and have successfully avoided the risk of a rapid decline in the exchange rate.” A person in charge of the foreign exchange hedging department of a machinery manufacturing foreign trade company told reporters.
However, he found that due to the accelerated decline in the RMB exchange rate since this week, the daily foreign exchange settlement operations of enterprises have been affected. Specifically, the foreign exchange settlement amount of enterprises in June dropped significantly by more than 25% compared with May. The reason is that business owners hope to wait for the RMB exchange rate to fall further before settling foreign exchange, so as to exchange for more RMB funds.
The director of the corporate business department of the above-mentioned joint-stock bank told reporters that this phenomenon is quite common among foreign trade companies. Some foreign trade companies even view delayed foreign exchange settlement as a new way to ease business pressure – especially after the Federal Reserve released a hawkish signal that caused the U.S. dollar index to rebound. These business owners believe that the RMB exchange rate may fall below 6.65, so they all hope to The foreign exchange will be settled near 6.7, thereby collecting an extra amount of RMB foreign exchange settlement for production and operation and easing the cost of raw material procurement.
“We have repeatedly reminded them that relying on timed settlement of foreign exchange to ease business operating pressure is by no means a long-term solution.” He pointed out. Its essence is also betting on the exchange rate. Once a company has exchange rate expectations,If there is no judgment, it will be easy to steal the chicken but lose the rice, and suffer a large exchange loss.
The director of the corporate business department of a joint-stock bank said frankly that this drives the bank to actively promote a variety of RMB and foreign exchange swap products to these foreign trade companies, and guides foreign trade companies to transfer foreign exchange funds at the established exchange rate. The foreign exchange settlement is converted into RMB for production and operation. When the foreign exchange swap product expires, foreign trade enterprises can also exchange RMB into foreign exchange at the same exchange rate. In this way, the price of foreign exchange settlement and sales remains consistent, so that enterprises no longer worry about the risk of exchange rate fluctuations.
“More than 40% of foreign trade corporate customers expressed their willingness to use such foreign exchange swap products to hedge the risk of exchange rate fluctuations in foreign exchange settlement business. The remaining foreign trade companies still tend to bet on further declines in the exchange rate, hoping to gain benefits from it. Higher foreign exchange gains,” he pointed out. However, compared with the same period last year, the former’s proportion has increased by about 10 percentage points.
The “new troubles” of foreign exchange hedging for foreign exchange purchasing companies
With the rapid decline of the RMB exchange rate , many foreign exchange purchasing companies are “headaches” due to increasing exchange costs.
Reporters have learned from many sources that June to August each year is a period of seasonal foreign exchange purchases, and the dividends and profit remittances of foreign-invested enterprises and overseas listed companies will be relatively low. Concentration has led to an increase in the demand for foreign exchange purchases by these companies.
A financial director of a U.S. listed company told reporters that in order to hedge against large fluctuations in the cost of foreign exchange purchases, they implemented foreign exchange options for the mid-year foreign exchange purchases in response to the continued depreciation of the U.S. dollar at the beginning of the year. The price was set around 6.4-6.45. Now the RMB exchange rate has fallen rapidly to around 6.47, resulting in the inability to exercise relevant foreign exchange options, forcing companies to purchase foreign exchange at a higher cost in the secondary market.
“Currently the entire financial department is worried that the top management of the board of directors will be held accountable, believing that we have misjudged the trend of the RMB exchange rate.” She pointed out.
Reporters have learned from many sources that many trading companies that need to pay foreign exchange payments mid-year for imported raw materials also encounter similar dilemmas.
The financial person in charge of a furniture importer in Jiangsu and Zhejiang revealed to reporters that they had previously set the execution price of foreign exchange options for foreign exchange purchases at around 6.4, with the intention of betting on the exchange rate. Higher prices can alleviate the pressure on rising timber import procurement costs. Now that the exchange rate has fallen, foreign exchange options cannot be exercised, and timber prices have risen sharply from the beginning of the year. The current import and procurement costs of raw materials for enterprises are still more than 17% higher than last year.
“Nowadays, corporate executives also have opinions on us and believe that our original foreign exchange hedging operation made serious mistakes.” He pointed out. But in fact, the reason why they set the execution price of foreign exchange options at around 6.4 is entirely because business owners saw in March that the Federal Reserve was still not tightening its monetary easing policy, and they were boldly optimistic that the RMB exchange rate would rise to between 6.3-6.4. .
Many bankers said that this shows that the foreign exchange risk hedging operations of many foreign exchange purchasing companies still have a relatively high nature of betting on exchange rates. The reasons are: First, the financial assessment mechanism of enterprises has not caught up, and only the profits and losses of foreign exchange hedging are assessed, forcing the enterprise’s hedging department to bet on exchange rates to achieve profitability in hedging operations; second, enterprises often have a “one word” culture, which makes The entire foreign exchange hedging operation has a strong personal emotion.
“At present, we are guiding these enterprises to gradually establish a foreign exchange hedging operation mechanism based on the principle of risk neutrality, and then improve the financial assessment mechanism and promote the diversification of foreign exchange hedging operation strategies. .” A person in charge of the financial market department of a large state-owned bank revealed to reporters that, for example, they suggest that foreign trade companies completely lock most of their foreign exchange purchase risk exposures through foreign exchange derivatives portfolios to completely avoid the risk of exchange rate fluctuations, and at the same time, use a small part of their foreign exchange purchases to Foreign exchange risk exposures can be hedged on a rolling basis based on exchange rate fluctuations to obtain certain hedging returns, thereby achieving foreign exchange rate hedging and meeting corporate profit needs. </p
