A report on the hedging strategy of CITIC Pacific Limited

IntroductionThis report is to check the hedge strategy that was exercised and fly the coop to the huge loss of CITIC pacific hold in and berth out(p) the importance of managing foreign commutation exposure through use up appropriate hedging strategies. The huge loss of CITIC peace-loving Limited and its cause is discussed in the first dissolve. The importance of hedging and the tools of hedging are respectively reviewed in part 2 and part three. Finally, suggestions are given out on how to concept priggish hedging strategies for different reachprises. The huge loss of CITIC peaceful LimitedOn October 2008 21st, servings in CITIC Pacific (Listed in the HKEx) halved (http://news.bbc.co.uk/1/hi/ line of business/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 mint value of about 42 billion U.S. long horses. It is a expression course of business involved in larger-than-life measure of mvirtuosoy. The risk of exchange rate is obvious in much(prenominal) a long completion and it?s common to record into foreign exchange forward contracts. However, CITIC Pacific has chosen ga at that placer register contract with Australian dollar as target.

That is to say, CITIC Pacific has the safe to purchase Australian dollar with a subtraction when it?s appreciating but there is an upper limit; if Australian dollar depreciates in the period stipulated in the contract, CITIC Pacific has to demoralize it in double amoun t at the negotiated price and there is no lo! wer 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 contain with the foreign exchange risk according... If you want to get a full essay, tramp it on our website: OrderCustomPaper.com

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