A report on the hedging strategy of CITIC Pacific Limited

IntroductionThis report is to check the hedge strategy that was rehearsed and operate to the huge loss of CITIC pacific hold in and headway out(p) the importance of managing foreign commutation exposure through use up appropriate hedging strategies. The huge loss of CITIC peaceful Limited and its cause is discussed in the first dissolve. The importance of hedging and the tools of hedging are respectively reviewed in part devil and part three. Finally, suggestions are given out on how to objective priggish hedging strategies for different reachprises. The huge loss of CITIC peaceable LimitedOn October 2008 21st, pieces in CITIC Pacific (Listed in the HKEx) halved (http://news.bbc.co.uk/1/hi/ contrast/7683160.stm) aft(prenominal) the news of huge loss of foreign exchange was released. The beside day, the share price fell sharply by 24.69%. The performance is a 25-year long magnetite investment project with keep eat up value of about 42 billion U.S. long horses. I t is a expression course of business involved in enormous measure of m maveny. The risk of exchange rate is obvious in much(prenominal) a long completion and it?s common to fancy into foreign exchange forward contracts. However, CITIC Pacific has chosen storage battery register contract with Australian dollar as target.

That is to say, CITIC Pacific has the safe to purchase Australian dollar with a disregard when it?s appreciating but on that point is an upper limit; if Australian dollar depreciates in the period stipulated in the contract, CITIC Pacific has to buy it in double amount at the negotiated price and there is no lower limit. With the outbreak of the global financial crisis (http://www.eurotopics.net/en/magazin! /magazin_aktuell/finanzkrise-2008/debatte-kapitalismus-11-2008/), the Australian dollar devaluated more than 10.8 percent in a period of time as short as one month, which at present lead to the huge loss of CITIC Pacific. It?s supposed to study simple and traditional financial derivatives to make with the foreign exchange risk according... If you want to get a full essay, tramp it on our website: OrderEssay.net

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