The Financial Planning Of China Cosco Under Exchange Rate Fluctuations

In July 21, 2005,The People's Bank of China announced the surprise 2% appreciation of the RMB against the US dollar and gave up the single dollar exchange rate and carried out a managed floating exchange rate system with the market based on supply and demand and with reference to a basket of currencies conditioning. The new, more flexible mechanism of the RMB exchange rate made the enterprises which are accustomed to do business in China under the conditions of the fixed exchange rate suddenly exposed to the exchange rate risks,therefore Chinese enterprises need to improve the exchange rate risk management capabilities as soon as possible. This paper gives a reference to the latest domestic and foreign theoretical knowledge about the exchange rate risk and applies it to the case of financial hedging planning of CHINA COSCO.The first part of the paper analyzes the current exchange rate environment and the domestic pressure on the appreciation of the RMB and the process of the RMB exchange rate changing from a fixed one to a floating one.It also explores the factors which lead to the exchange rate fluctuations that will bring risk to the enterprises and illustrates the three sources of exchange rate risks: exchange risks, economic risk and accounting risk.The second part analyzes how CHINA COSCO is exposed to exchange rate risks and the links between its business and exchange rate fluctuations and the characteristics of the company's exchange rate risks.Finally, it clarifies the impact of exchange rate fluctuations on the value of the company by quantitative analysis.The third part makes reference to the experience of domestic foreign exchange risk management and customizes a series of hedging financial planning according to the situation of CHINA COSCO to deal with exchange rate fluctuations .Finally the paper comes to a conclusion that CHINA COSCO should improve its exchange rate management system according to its own operating characteristics and adopt different financial hedging plannings for a variety of exchange rate risk. By these means CHINA COSCO can control the exchange rate risks effectively and reduce the loss caused by exchange rate fluctuations and ensure the healthy and stable operation in the wave of international operations.